<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1997
REGISTRATION NO. 333-19939
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
<TABLE>
<S> <C> <C>
DELAWARE 3728 34-1645569
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code No.) Identification
No.)
</TABLE>
155 MONTROSE WEST AVENUE
SUITE 210
COPLEY, OH 44321
(330) 668-3061
(Address, including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
R. JACK DECRANE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
DECRANE AIRCRAFT HOLDINGS, INC.
155 MONTROSE WEST AVENUE
SUITE 210
COPLEY, OH 44321
(330) 668-3061
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
--------------------------
WITH COPIES TO:
STEPHEN A. SILVERMAN, ESQ. KENNETH J. BARONSKY, ESQ.
SPOLIN & SILVERMAN MILBANK, TWEED, HADLEY & McCLOY
100 Wilshire Boulevard, Suite 940 601 S. Figueroa, 30th Floor
Santa Monica, California 90401 Los Angeles, California 90017
(310) 576-1221 (213) 892-4000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE (2)
<S> <C> <C> <C> <C>
Common Stock, Par Value, $.01 2,987,040 Shares $15.00 $44,805,600 $13,577(3)
</TABLE>
(1) Includes 389,614 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457.
(3) $13,068 was previously paid.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 27, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[LOGO]
2,597,426 SHARES
DECRANE AIRCRAFT HOLDINGS, INC.
COMMON STOCK
($.01 PAR VALUE)
Of the 2,597,426 shares of Common Stock of DeCrane Aircraft Holdings, Inc.
offered hereby, 2,500,000 shares are being sold by the Company and 97,426 shares
are being sold by a Selling Stockholder. The Company will not receive any
proceeds from the sale of shares by the Selling Stockholder. Prior to this
offering, there has been no public market for the Common Stock of the Company.
It currently is estimated that the initial public offering price will be between
$13.00 and $15.00 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price.
Approximately $10 million of the proceeds of this offering will be used to repay
indebtedness owed to certain affiliates and principal stockholders of the
Company. Following this offering, affiliates and certain principal stockholders
of the Company will beneficially own approximately 48.3% of the Common Stock.
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "DAHX."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company and certain Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 389,614 shares of Common Stock
at the Price to Public, less Underwriting Discounts and Commissions shown
above, solely to cover over-allotments, if any. If the Underwriters exercise
only a portion of the over-allotment option, the first 84,535 shares will be
purchased from such Selling Stockholders and any remaining shares will be
purchased from the Company. If this option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to the Selling Stockholders will be $ ,
$ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are being offered by the several
Underwriters named herein, subject to prior sale and acceptance by the
Underwriters and subject to their right to reject any order in whole or in part.
It is expected that the Common Stock will be available for delivery on or about
April , 1997 at the offices of Schroder Wertheim & Co. Incorporated, New York,
New York.
SCHRODER WERTHEIM & CO. DILLON, READ & CO. INC.
ING BARINGS
April , 1997
<PAGE>
[PHOTOGRAPH OF SILHOUETTE OF AN AIRPLANE FLYING]
[PHOTOGRAPH OF AN AIRPLANE FLIGHT DECK]
[COMPANY LOGO]
The Company is a
manufacturer of products and
a provider of services for
certain niche markets of the
commercial aircraft
industry. The Company's
products and services
typically are utilized to
provide an interface between
an aircraft and its avionics
systems, such as those
pictured here.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
<TABLE>
<S> <C>
[PHOTOGRAPH OF CONTACTS] [PHOTOGRAPH OF CONNECTORS]
[PHOTOGRAPH OF BINS OF CONTACTS]
The variety of contacts manufactured by the The Company manufactures specialty connectors which
Company conduct electronic signals or are used within an aircraft to provide an electronic
electricity within an aircraft and conform or electrical link between discrete wires or devices.
to strict design tolerances. The Company Many of the connectors manufactured by the Company
manufactures millions of contacts each utilize the Company's contacts.
month.
</TABLE>
<TABLE>
<S> <C>
[PHOTOGRAPH OF HARNESS ASSEMBLIES] [PHOTOGRAPH OF INSTALLATION KITS]
The Company manufactures harness assemblies The Company manufactures avionics
for use with aircraft avionics systems. The support structures used to secure
harness assemblies depicted utilize contacts avionics systems within an
and connectors manufactured by the Company. aircraft. These support structures,
together with the connectors and
harness assemblies manufactured by
the Company, form the foundation of
the installation kits shown above,
which are used in the Company's
systems integration projects.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
[PHOTOGRAPH OF MAN AT A CAD STATION] [PHOTOGRAPH OF WOMAN SITTING IN AIRPLANE
SEAT WATCHING A VIDEO MONITOR]
The Company employs more than 90 engineers, many Many of the Company's products and services
of whom design, engineer and certify modifications involve in-flight entertainment and
to existing aircraft as part of the Company's passenger telecommunication systems.
systems integration efforts.
</TABLE>
[PHOTOGRAPH OF MEN INSTALLING A SYSTEM ONTO AN AIRCRAFT]
The Company-employed, FAA-certified mechanics shown above are installing an
installation kit for a flight deck avionics system.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. REFERENCES
IN THIS PROSPECTUS TO THE "COMPANY" MEAN DECRANE AIRCRAFT HOLDINGS, INC., A
DELAWARE CORPORATION, AND ITS PREDECESSORS AND SUBSIDIARIES, AND WITH RESPECT TO
AVIATION REGULATORY ISSUES, ONE OR MORE, BUT NOT NECESSARILY ALL, OF THESE
ENTITIES. EXCEPT AS OTHERWISE INDICATED, ALL OF THE INFORMATION IN THIS
PROSPECTUS WITH REGARD TO SHARES AND PER SHARE AMOUNTS PERTAINING TO THE
COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), HAS BEEN
ADJUSTED TO GIVE EFFECT TO A REVERSE STOCK SPLIT WHICH IS PART OF THE
RECAPITALIZATION OF THE COMPANY (THE "RECAPITALIZATION") DESCRIBED UNDER
"DESCRIPTION OF CAPITAL STOCK--THE RECAPITALIZATION." UNLESS OTHERWISE
INDICATED, THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS HAVE NOT EXERCISED
THEIR OVER-ALLOTMENT OPTION.
THE COMPANY
The Company is a manufacturer of avionics components and a provider of
avionics systems integration services in certain niche markets of the commercial
aircraft industry. The products and services offered by the Company are utilized
primarily in commercial aircraft to connect, support and/or integrate various
avionics systems, including cabin management, in-flight entertainment and
passenger telecommunications systems ("cabin avionics systems") and navigation
and safety systems ("flight deck avionics systems"). The Company's targeted
markets consist of commercial aircraft and avionics original equipment
manufacturers ("OEMs"), the commercial aircraft retrofit market and the
commercial aircraft aftermarket. The Company also sells products and services to
the military aircraft market.
The Company seeks to maximize its sales by emphasizing the complementary
nature of its products and services. Components manufactured by the Company
include: (i) contacts (of which the Company believes it is the largest supplier
of bulk contacts to the commercial aircraft OEMs); (ii) connectors (which often
utilize the contacts manufactured by the Company); (iii) harness assemblies
(which often utilize the connectors manufactured by the Company); and (iv)
avionics support structures (which often are packaged with the Company's
connectors and harness assemblies in installation kits). In addition, the
Company manufactures dichroic liquid crystal display ("LCD") devices, which are
used with flight deck avionics, and believes it is the largest supplier of such
devices to the commercial aircraft OEMs. The systems integration services
provided by the Company include design and engineering, Federal Aviation
Administration ("FAA") certification, manufacture of installation kits and
systems installation. The Company manufactures many of the components required
to complete a systems integration project, which it believes provides it a
critical competitive advantage.
The Company believes that every commercial aircraft currently produced by
the Boeing Company ("Boeing"), Airbus Industrie ("Airbus") and McDonnell Douglas
Corporation ("McDonnell Douglas") contains components manufactured by the
Company. In addition, the Company has entered into supply agreements with
Boeing, pursuant to which the Company believes that it is the supplier of a
substantial majority of the bulk contacts for all aircraft currently
manufactured by Boeing and is the sole-source supplier of certain connectors for
in-flight entertainment systems installed by Boeing on its 777 aircraft. As a
result, the Company expects to benefit from the continuing recovery of the
commercial aircraft industry, although there can be no assurances in this
regard. According to the 1996 AND 1997 CURRENT MARKET OUTLOOK (collectively, the
"Boeing Report") published by the Boeing Commercial Airplane Group, expenditures
for new aircraft production are expected to total approximately $230 billion for
the period from 1996 through 2000. This compares to expenditures for new
aircraft of approximately $170 billion for the period from 1991 through 1995.
The Boeing Report also estimates that annual deliveries of commercial aircraft
will increase from approximately 400 in 1996 to more than 600 in 1997 and will
be between 700 and 800 in 1998. In addition, for the period from 1996 through
2000, revenue passenger miles will increase from 1.6 trillion to 2.1 trillion
and the worldwide fleet of aircraft will increase from 11,500 at the end of 1996
to approximately 14,000 at the end of 2001 (net of approximately 1,375
retirements). The
3
<PAGE>
Company believes that the increase in new aircraft production is being driven by
numerous factors, including: (i) a general increase in demand for air travel;
(ii) an increase in the capacity utilization (load factor) of aircraft currently
in service; (iii) an increase in the average age of the worldwide aircraft
fleet; (iv) the cost-effectiveness of using new aircraft versus old aircraft;
and (v) a general improvement in the financial condition of the airline
industry.
The Company believes that its position as a primary supplier of products and
services to manufacturers of cabin avionics systems and flight deck avionics
systems provides the Company with opportunities for growth independent of the
aircraft OEM market upturn because such systems typically are installed on a
retrofit basis by purchasers of aircraft and not by aircraft OEMs. The Company's
customers in these markets include AT&T Wireless Services, Inc. ("AT&T") for
passenger telecommunications systems, Interactive Flight Technologies, Inc.
("IFT") for in-flight casino-style gaming and video-on-demand systems,
Matsushita Avionics Systems ("Matsushita") for in-flight entertainment systems
and the Rockwell Collins Division ("Rockwell Collins") of Rockwell International
Corp. for flight deck avionics systems. The Company believes that demand for
cabin avionics systems and flight deck avionics systems is increasing, primarily
as a result of: (i) a desire by airlines for additional revenue-producing
services; (ii) longer flights combined with a demand by airline passengers for
more sophisticated forms of in-flight services; and (iii) the advent of new
technologies and FAA mandates related to aircraft safety and navigation.
The Company's principal strategy is to establish and expand leading
positions in high-margin, niche markets within the commercial aircraft industry,
with a focus on the manufacture of avionics components and the integration of
avionics systems. Historically, the Company has demonstrated an ability to
increase revenues during times of industry decline which it attributes to
several actions, including: (i) the establishment of a balanced offering of
products and services for the OEM market, the retrofit market and the
aftermarket; (ii) the initiation of private labeling programs pursuant to which
the Company manufactures contacts for other connector manufacturers, including
certain of the Company's competitors; (iii) the development of new products such
as specialty connectors for Boeing's 777 aircraft; and (iv) the diversification
into new services such as the integration of in-flight entertainment systems. In
the future, the Company will seek to grow by: (i) capitalizing on growth in
commercial aircraft production; (ii) exploiting increased demand for cabin
avionics systems; (iii) expanding and diversifying the Company's systems
integration services; (iv) completing additional strategic acquisitions; and (v)
capitalizing on the Company's complementary products and services.
RECENT ACQUISITION ACTIVITY
The Company was formed in 1989 to capitalize on emerging trends in the
aircraft market through acquisitions. Since its formation, the Company has
completed eight acquisitions of businesses or assets, three of which were
completed in 1996.
- In December 1996, the Company expanded its contact manufacturing
capability and capacity by purchasing certain manufacturing assets
(collectively, the "AMP Facility") from AMP, Inc. ("AMP"). The AMP
Facility enables the Company to produce contact blanks (unfinished
contacts) using a cold-heading manufacturing process which, when used for
high volume production, is more cost-effective than the Company's existing
screw machine operations. Therefore, the Company is seeking to optimize
its contact production by converting a portion of its existing high volume
manufacturing runs to the cold-heading process. The plating and finishing
of contact blanks produced at the AMP Facility will be conducted at the
existing facilities of the Company.
- In December 1996, the Company acquired Elsinore Aerospace Services, Inc.
and the Elsinore Engineering Services division (collectively, "Elsinore")
of Elsinore, L.P. The acquisition of Elsinore provided the Company with
the ability to issue certain FAA design approvals for modification to
designated aircraft through Elsinore's FAA-issued Designated Alteration
Station
4
<PAGE>
("DAS") approval. As a systems integrator, the Company regularly seeks
such FAA approvals on behalf of its customers when it integrates a system
onto an aircraft. The ability to issue FAA approvals through Elsinore
eliminates the need, in most instances, for the Company to apply to the
FAA for such approvals, thereby expediting the approval process. In
addition, the acquisition of Elsinore increased by approximately 50% the
number of the Company's engineering professionals dedicated to systems
integration functions.
- In September 1996, the Company acquired the Aerospace Display Systems
division ("ADS") of Allard Industries, Inc. ADS is a manufacturer of
dichroic LCD devices for use with flight deck avionics systems. The
Company believes that ADS is the largest supplier of such devices to the
commercial aircraft industry. The acquisition of ADS expanded the
Company's offering of components used in flight deck avionics systems and
strengthened its position as a leading supplier of niche avionics
components.
In addition, in February 1996, the Company acquired the remaining 25%
interest in Cory Components, Inc. ("Cory Components") which it did not already
own (the "Minority Interest Acquisition").
The Company believes that the fragmented nature of the market for aircraft
components and systems integration services will provide it with additional
opportunities to exploit industry consolidation trends.
* * * *
The Company's corporate office is located at 155 Montrose West Avenue, Suite
210, Copley, OH 44321. The Company's telephone number is (330) 668-3061. All
inquiries or notices should be directed to the attention of R. Jack DeCrane,
Chairman of the Board and Chief Executive Officer of the Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by:
The Company.......................... 2,500,000 shares
The Selling Stockholders............. 97,426 shares (1)
Total.............................. 2,597,426 shares
Common Stock to be Outstanding after
the Offering......................... 5,051,690 shares (2)
Use of Proceeds........................ To repay certain indebtedness. See "Use of
Proceeds."(3)
Proposed Nasdaq National Market
symbol............................... DAHX
</TABLE>
- ------------------------------
(1) Does not include up to 84,535 shares which may be sold by certain Selling
Stockholders pursuant to the Underwriters' over-allotment option. See
"Principal and Selling Stockholders" and "Underwriting."
(2) Does not include: (i) 527,156 shares of Common Stock reserved for issuance
pursuant to the Company's Amended and Restated 1993 Share Incentive Plan
(the "Share Incentive Plan"), of which options to purchase 355,001 shares
have been granted (see "Management--Executive Compensation--Share Incentive
Plan"); and (ii) 70,893 shares reserved for issuance upon exercise of
certain warrants (the "Lender Warrants") (see "Description of Capital
Stock--Warrants").
(3) Approximately $10 million of the net proceeds will be used to repay
indebtedness held by Electra Investment Trust P.L.C. and Electra Associates,
Inc. (collectively, "Electra") and Nassau Capital Partners L.P. and NAS
Partners I L.L.C. (collectively, "Nassau"), which are affiliates and
principal stockholders of the Company. See "Certain Transactions."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
AS
ADJUSTED(2)
---------
YEAR
ENDED
DECEMBER
YEAR ENDED DECEMBER 31, 31,
--------------------------------- ---------
1994 1995 1996(1) 1996
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ 47,092 $ 55,839 $ 65,099 $ 72,805
Gross Profit...................................... 10,685 12,376 15,707 18,274
Operating income.................................. 1,760 1,835 4,251 5,321
Income (loss) before provision for income taxes
and extraordinary item.......................... (1,816) (2,368) (105) 4,635
Net income (loss)................................. (2,693) (3,446) (817) 3,519
Net income (loss) applicable to common
stockholders.................................... (2,891) (3,307) (6,357) 3,519
Income (loss) per common share:
Pro forma for the Recapitalization.....................................
$ (.31)
Pro forma as adjusted (3)..............................................
$ .66
Weighted average number of common shares
outstanding:
Pro forma for the Recapitalization.....................................
2,659
Pro forma as adjusted (4)..............................................
5,363
OTHER FINANCIAL DATA:
Depreciation and amortization (5)................. $ 3,868 $ 4,244 $ 4,012
Bookings (6)...................................... 47,896 50,785 81,914
Backlog at end of period (7)...................... 24,493 19,761 44,433
<CAPTION>
DECEMBER 31, 1996
---------------------
PRO FORMA
AS
ACTUAL ADJUSTED(8)
--------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 10,486 $ 15,673
Total assets............................................................. 69,266 66,707
Total debt............................................................... 42,250 12,818
Mandatorily redeemable common stock warrants............................. 6,879 --
Stockholders' equity..................................................... 1,236 35,451
</TABLE>
- ------------------------------
(1) Includes the effect of the Minority Interest Acquisition beginning February
20, 1996, the date on which the transaction occurred, and the results of ADS
and Elsinore beginning September 18, 1996 and December 5, 1996,
respectively, the dates on which they were acquired.
(2) Pro forma for the Minority Interest Acquisition and the acquisition of ADS
as if they had occurred on January 1, 1996. Adjusted to reflect the sale by
the Company of 2,500,000 shares of Common Stock in this offering (the
"Offering") and the application of the net proceeds therefrom as set forth
under "Use of Proceeds." Excludes an extraordinary charge of $3.9 million to
be incurred as a result of the repayment of debt with the net proceeds from
the Offering.
(3) Reflects the Recapitalization as well as the acquisitions and the Offering,
as described in Note (2) above.
(4) Pro forma for the Recapitalization and adjusted for the 2,500,000 shares of
Common Stock offered hereby by the Company. Includes shares of Common Stock
related to outstanding management options issued pursuant to the Share
Incentive Plan. Does not include 70,893 shares of Common Stock issuable upon
exercise of the Lender Warrants.
(5) Includes deferred financing cost amortization included in interest expense
of $432,000, $608,000 and $661,000 in 1994, 1995 and 1996, respectively.
(6) Bookings represent the total invoice value of purchase orders received
during the period. See "Business--Backlog."
(7) Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year
will be materially affected by the timing of the Company's receipt of orders
and the speed with which those orders are filled. See "Business--Backlog."
(8) Reflects: (i) the Recapitalization; and (ii) the sale by the Company of
2,500,000 shares of Common Stock in the Offering and the application of the
net proceeds therefrom as set forth under "Use of Proceeds."
6
<PAGE>
RISK FACTORS
POTENTIAL PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, BEFORE DECIDING TO PURCHASE SHARES OF COMMON STOCK OFFERED HEREBY.
COMMERCIAL AIRCRAFT INDUSTRY RISKS
Among the Company's principal customers are the world's commercial aircraft
and avionics OEMs. The principal market for such OEMs is the commercial airline
industry, which is cyclical and has been adversely affected by a number of
factors, including, but not limited to, increased fuel and labor costs and
intense price competition. The commercial airline industry may be adversely
affected by increased regulatory scrutiny in the wake of several major airline
disasters and threats of terrorism. Several domestic and foreign commercial
airlines have encountered significant financial difficulties, resulting in
certain of such airlines ceasing to conduct business or seeking protection from
creditors. These financial difficulties, as well as certain other factors,
caused new commercial aircraft deliveries to decline from a peak of
approximately 770 aircraft in 1991 to approximately 370 aircraft in 1995
according to AEROSPACE AND AIRTRANSPORT CURRENT ANALYSIS published by Standard
and Poor's Industry Surveys (the "S&P Report"). Another industry downturn could
adversely affect the Company's business. See "Business--Industry Overview and
Trends."
SUBSTANTIAL LEVERAGE; HISTORY OF NET LOSSES AND DEFAULTS
The Company has operated with substantial leverage and debt service
requirements since its first acquisition in 1990. As a result, since 1990, the
Company has experienced net losses in each year through 1996, despite positive
operating income. In addition, the Company was not in compliance with certain
financial covenants contained in its debt agreements at various times since its
inception. In each case such non-compliance was waived by the lenders. Since
March 1996, the Company has been in compliance with all financial covenants
contained in its existing debt agreements. Although the Company intends to use
the net proceeds of this Offering to repay a significant portion of its
outstanding indebtedness, there can be no assurance as to the future
profitability of the Company nor can there be assurance that the Company will
remain in compliance with the covenants contained in its debt agreements. The
Company's New Credit Facility (as defined in "Use of Proceeds") will be
guaranteed by each of the Company's subsidiaries and will be secured by
substantially all the assets of the Company and its subsidiaries. In the event
that the Company is unable to remain in compliance with the covenants contained
in its debt agreements, the lenders could declare all amounts owed under such
debt agreements to be immediately due and payable, which could have a material
adverse effect on the Company. See "Use of Proceeds," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Notes to Consolidated Financial Statements."
FLUCTUATIONS IN QUARTERLY AND YEARLY RESULTS
The Company's business is subject to quarterly and yearly fluctuations.
Specifically, the magnitude of certain systems integration programs relative to
the Company's overall business has the potential to expose the Company's results
of operations to fluctuations in quarterly and yearly results. In addition,
irregular timing of awards or cancellations of systems integration contracts, as
well as development and technology delays by OEMs or their suppliers, could
further exacerbate such fluctuations in quarterly and yearly operations. If such
events occur, the results of operations of the Company may be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
7
<PAGE>
DEPENDENCE ON KEY CUSTOMERS
The Company's three largest customers are Boeing, Matsushita and AT&T, which
accounted for approximately 14.8%, 9.6% and 6.9%, respectively, of the Company's
consolidated revenues (pro forma for the acquisition of ADS) for the fiscal year
ended December 31, 1996. In addition, a significant portion of the Company's
sales of components are sold to Boeing indirectly through sales to suppliers of
Boeing. Most of the Company's sales to Boeing are pursuant to contracts which
may be terminated by Boeing at any time. In addition, under certain
circumstances, Boeing may enforce alternative economic terms pursuant to such
contracts in which case the contracts could become less commercially favorable
to the Company or the Company may elect to terminate the applicable portion of
such contracts. There can be no assurance that Boeing will not terminate any of
its contracts with the Company. The Company generally sells components and
services to Matsushita and AT&T pursuant to purchase orders, but does not have
any supply contracts with either company.
The Company has entered into a contract to provide systems integration
services for IFT's new in-flight entertainment system (the "IFT System") on 21
wide-body aircraft for Swiss Air Transport Co. Ltd. ("Swissair"). The Company's
contract with IFT provides for monthly progress payments and the Company will
account for revenues generated under the IFT contract using the percentage of
completion method of accounting. As of February 28, 1997, the Company had
integrated the IFT System onto two of Swissair's aircraft and continues to
integrate the IFT System onto additional Swissair aircraft. Under IFT's contract
with Swissair, IFT agreed to finance the purchase price of the IFT System in
exchange for a substantial share of potential future gaming revenues. However,
based on IFT's limited experience with the IFT System on Swissair's aircraft,
IFT has indicated that revenues from gaming are significantly below its
expectations. IFT has since announced a change in corporate strategy whereby it
will no longer finance the substantial majority of the purchase price of the IFT
System. Consistent with this new strategy, IFT also has announced that it is
exercising its contractual right to renegotiate its contract with Swissair in
order to shift a greater portion of the purchase price of the IFT System to
Swissair. Such negotiations currently are underway. IFT currently is in an
evaluation period provided for under its contract with Swissair, during which
IFT and Swissair are working together to optimize the operations and
functionality of the IFT System. IFT has indicated that it is working to improve
the reliability of the IFT System through software revisions and through design
improvements to the tray tables used in the economy section of the aircraft.
While the Company expects that it will continue to provide systems integration
services to IFT for Swissair's aircraft, there can be no assurance that (i) IFT
and Swissair will successfully renegotiate their contract or that such
renegotiation will not result in a materially reduced scope of work for the
Company; or (ii) that any existing or future technical or design issues will be
resolved. Termination of the contract between Swissair and IFT, a material
change in the scope of work for the Company, or any general delays or problems
with implementation of the IFT System could have a material adverse effect on
the Company.
The loss of any one or more of the Company's key customers could have a
material adverse effect on the Company. See "Business--Customers" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
REGULATION
The FAA prescribes standards and licensing requirements for aircraft
components, licenses private repair stations and issues DAS approvals giving the
holder the right to certify aircraft modifications on behalf of the FAA. The
ability of the Company to arrange for rapid government certification of its
systems integration services is essential to the Company's business and depends
on its continuing access to or use of private repair stations, DASs, and
FAA-designated and FAA-certified engineering professionals. There can be no
assurance that: (i) the Company will continue to have adequate access to such
stations and professionals; or (ii) the current public and congressional
scrutiny of the FAA's inspection philosophy and mechanisms will not result in
the restriction or elimination of the use of such private repair
8
<PAGE>
stations or DASs, either of which could have a material adverse effect on the
Company. In addition, although the Company believes that it possesses all
required domestic and foreign governmental licenses and certificates, including
without limitation Parts Manufacturer Approvals ("PMAs") and Supplemental Type
Certificates ("STCs"), any delay in obtaining or failure to obtain a required
license or certificate, or the revocation or limitation of such licenses or
certificates, could have a material adverse effect on the Company's operations.
See "Business--Industry Regulation and Approvals."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's ability to grow by acquisition is dependent upon, and may be
limited by, the availability of suitable acquisition candidates and capital, and
by restrictions contained in the Company's debt agreements. In addition, growth
by acquisition involves risks that could adversely affect the Company's results
of operations, including difficulties in integrating the operations and
personnel of acquired companies, the amortization of acquired intangible assets
and the potential loss of key employees of acquired companies. In the past,
acquisitions by the Company have resulted in increased indebtedness and interest
expense which has caused the Company to incur net losses in each year since its
inception despite positive operating income. There can be no assurance that the
Company will be able to identify suitable acquisition candidates, obtain the
capital necessary to pursue its acquisition strategy, consummate acquisitions on
satisfactory terms or, if any acquisitions are consummated, satisfactorily
integrate such acquired businesses into the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--General" and "Business-- Growth Strategy."
COMPETITION
The Company operates in a highly competitive industry and competes against a
number of companies, some of which have significantly greater financial,
technological and marketing resources than the Company. The Company believes
that its ability to compete depends on high product performance, short lead-time
and timely delivery, competitive price, and superior customer service and
support. There can be no assurance that the Company will be able to compete
successfully with respect to these or other factors. See
"Business--Competition."
GOLD AND COPPER
A significant portion of the cost of the materials used in the contacts
manufactured by the Company 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 have a material adverse effect on the Company's results of
operations. The Company has not purchased commodities contracts for gold or
copper and does not anticipate doing so in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FOREIGN CURRENCY
The Company has a manufacturing facility in Switzerland and incurs in Swiss
Francs a significant percentage of the cost of the contacts it manufactures in
Switzerland. Therefore the Company's financial results are subject to
fluctuations of the Swiss Franc in relation to the U.S. Dollar. In 1996, solely
in an effort to mitigate the effects of currency fluctuations, the Company began
to enter into forward exchange contracts to purchase Swiss Francs and it expects
to engage in such hedging transactions in the future. However, there can be no
assurance that such transactions will prevent currency fluctuations from
adversely affecting the Company's results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Notes to Consolidated Financial Statements."
9
<PAGE>
SUPPLY OF QUALIFIED ENGINEERING PERSONNEL
The Company's ability to attract and retain a high-quality engineering staff
is important to its business. Competition for qualified avionics engineers is
intense. There can be no assurance that the Company will be able to retain its
existing engineering staff or fill new positions or vacancies created by
expansion or turnover. See "Business--Products and Services" and
"Business--Employees."
CONTROL OF COMPANY BY PRINCIPAL STOCKHOLDERS
Following the completion of the Offering and giving effect to the
Recapitalization, (i) Nassau, (ii) DSV Partners, IV ("DSV"), (iii) Electra and
(iv) Brantley Venture Partners, II, L.P. ("Brantley") will beneficially own
16.6%, 9.8%, 9.0%, and 9.7%, respectively, of the issued and outstanding Common
Stock. By virtue of their stockholdings, such beneficial owners, if they act
together, will be able to elect the entire Board of Directors and exercise
significant control over the Company's business, policies and affairs and,
together, could cause the Company to take actions that may be adverse to the
Company's other stockholders. See "Principal and Selling Stockholders." Also,
Nassau, DSV, Brantley and the Company are parties to a shareholders agreement
which requires the Company for so long as the applicable stockholder owns at
least 5% of the Common Stock (including shares which may be acquired upon
exercise of warrants) to include on the Company's slate of nominees for director
a person designated by the applicable stockholder. See "Certain
Transactions--Shareholders Agreement."
EXCESS LOSS RISKS
The Company currently has in force aviation products insurance. To date, the
Company has not experienced any significant uninsured or insured
aviation-related claims or any material product liability claims. However, there
can be no assurance that the Company's existing insurance coverage will be
adequate to cover future claims that may arise or that such coverage can be
renewed at commercially reasonable rates.
ENVIRONMENTAL RISKS; ENVIRONMENTAL REGULATION
The Company's business operations and facilities are subject to a number of
federal, state, local and foreign environmental laws and regulations. In
addition, certain environmental laws such as the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), and similar
state laws impose strict, retroactive and joint and several liability upon
persons responsible for releases or potential releases of hazardous substances.
The Company has sent waste to treatment, storage or disposal facilities that
have been designated as National Priority List sites under CERCLA or equivalent
listings under state laws. The Company has received CERCLA requests for
information or allegations of potential responsibility from the Environmental
Protection Agency ("EPA") as to the Company's use of certain such sites. It is
possible, given the retroactive nature of CERCLA liability, that the Company
will, from time to time, receive additional notices of potential liability
relating to current or former activities. There can be no assurance that the
Company will not incur significant costs for prior waste disposal by the Company
or its predecessors. In addition, some of the Company's operations are located
on properties which are contaminated to varying degrees. Although the Company
has not incurred, nor does it expect to incur, significant costs to address such
contamination, there can be no assurance that the Company will not incur
significant costs in the future to address contamination.
Although the Company believes that its operations and facilities are in
material compliance with all federal, state, local and foreign environmental
laws and regulations, there can be no assurance that the Company will not incur
significant costs in the future due to current or former operations and waste
disposal practices or changing environmental compliance requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Matters," "Business--Environmental Matters" and
"Business--Legal Proceedings."
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DISRUPTIONS AT THE COMPANY'S FACILITIES
A significant portion of the Company's manufacturing and administrative
operations are currently located in the greater Los Angeles, California area, an
area that may be subject to earthquakes or other natural disasters. Although the
Company maintains standard property and business interruption insurance, as well
as earthquake insurance on its primary manufacturing facility, an earthquake or
other natural disaster could have a material adverse effect on its business and
operating results. See "Business--Facilities."
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market will develop or, if
developed, will be sustained after the completion of the Offering. The initial
public offering price of the Common Stock offered hereby will be determined
through negotiations between the Company and the representatives of the
Underwriters and may not be indicative of future market prices. See
"Underwriting" for information relating to the factors considered in determining
the initial public offering price of the Common Stock. Factors such as
announcements concerning the Company or its competitors, investor perception of
the Company, fluctuations in the Company's operating results and general market
conditions may cause the market price of the Common Stock to fluctuate
significantly.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
after the Offering, or the expectation that such sales could occur, could
adversely affect the market price of the Common Stock and the Company's ability
to raise capital through a subsequent offering of securities. Of the 5,051,690
shares of Common Stock to be outstanding after the Offering and the
Recapitalization, 3,138,951 shares will be available for resale in the public
market without restriction immediately following the Offering if held by holders
who are not "affiliates" of the Company (as defined in the Securities Act of
1933, as amended (the "Securities Act")). All of the remaining shares are
"restricted securities" within the meaning of Rule 144 adopted under the
Securities Act. These restricted securities were issued and sold by the Company
in private transactions in reliance upon exemptions from registration under the
Securities Act. After expiration of the 180-day lock-up period following the
Offering, pursuant to agreements with the Underwriters: (i) all restricted
securities will be available for resale pursuant to the limitations of Rule 144;
and (ii) the Company, pursuant to its certificate of incorporation (the
"Certificate"), may authorize the issuance of additional shares of Common Stock
and shares of one or more series of voting preferred stock. The issuance of
additional shares of capital stock could result in the dilution of the voting
power of the shares of Common Stock purchased in the Offering. In addition,
following the expiration of the 180-day lock-up period, certain stockholders
have the right, pursuant to the terms and conditions of a registration rights
agreement (the "Registration Rights Agreement"), to require the Company to: (i)
effect (in the aggregate) up to four registrations under the Securities Act
covering all or any portion of the shares of Common Stock held by such
stockholders, provided that if the Company effects a registration at the request
of a stockholder, no further demand may be made for a period of at least nine
months; and (ii) include all or any portion of such stockholders' shares of
Common Stock in any proposed registration by the Company of shares of Common
Stock (subject to reduction to the extent that the managing underwriter, if any,
is of the opinion that such inclusion would adversely affect the marketing of
the securities to be sold therein). See "Description of Capital Stock," "Shares
Eligible for Future Sale" and "Underwriting."
ANTI-TAKEOVER PROVISIONS
The Board of Directors has the authority to issue up to 10,000,000
additional shares of Preferred Stock (the "Undesignated Preferred Stock") and to
determine the terms and number of shares constituting any wholly unissued series
of Undesignated Preferred Stock. The Board, without further approval of the
holders of Common Stock, may issue shares of Undesignated Preferred Stock with
rights that could adversely affect the rights of the holders of Common Stock.
The issuance of shares of Undesignated
11
<PAGE>
Preferred Stock under certain circumstances could have the effect of delaying or
preventing a change of control of the Company or other corporate actions. In
addition, certain provisions of the Certificate and the Company's bylaws (the
"Bylaws") and of Delaware law could have the effect of making it more difficult
for a third party to acquire, or discouraging a third party from attempting to
acquire, control of the Company. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of the Common
Stock. See "Description of Capital Stock--Preferred Stock" and "Description of
Capital Stock--Certain Certificate and Bylaw Provisions and Delaware General
Corporation Law Section 203."
DILUTION
Based upon an assumed public offering price of $14.00 per share, purchasers
in the Offering will incur an immediate and substantial dilution of
approximately $10.95 in the net tangible book value per share and existing
stockholders will receive the benefit of an immediate increase in the net
tangible book value per share of approximately $8.28. Purchasers in the Offering
will pay approximately 65.2% of the total consideration paid by all stockholders
of the Company. The shares of Common Stock sold by the Company in the Offering
represent approximately 49.5% of the Common Stock which will be outstanding
following the Offering. See "Dilution."
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<PAGE>
RECENT DEVELOPMENTS
PURCHASE OF AMP FACILITY
On December 12, 1996, the Company expanded its contact manufacturing
capability and capacity by purchasing the AMP Facility. The AMP Facility enables
the Company to produce contact blanks using a cold-heading manufacturing process
which, when used for high volume production, is more cost-effective than the
Company's existing screw machine operations. Therefore, the Company is seeking
to optimize its contact production by converting a portion of its existing high
volume manufacturing runs to the cold-heading process. The plating and finishing
of contact blanks produced at the AMP Facility will be conducted at the existing
facilities of the Company.
The purchase price of the AMP Facility (including related fees and expenses
and post-closing adjustments) was $6.8 million, $5.4 million of which was paid
at the closing. The Company financed the portion of the purchase price paid at
closing through the issuance of $5.0 million principal amount of the Senior Term
Notes (as defined in "Use of Proceeds") and a $.4 million drawdown under the
Senior Revolver (as defined in "Use of Proceeds"). The balance of the purchase
price was paid in early 1997 through a drawdown of the Senior Revolver. The
Company has entered into agreements to supply AMP with a portion of its contact
requirements for up to two years. In addition, as a result of the purchase of
the AMP Facility, the Company will have the opportunity to make increased sales
to certain distributors that formerly purchased contacts from other entities
within AMP. The AMP Facility was not purchased as a separate, stand-alone
business and no meaningful historical financial data is available.
ACQUISITION OF ELSINORE
On December 5, 1996, the Company expanded its systems integration
capabilities with the acquisition of Elsinore. Elsinore provides the Company
with the ability to issue certain FAA design approvals for modifications to
designated aircraft, which the Company believes is a key competitive advantage
for winning systems integration contracts. By acquiring Elsinore, the Company is
seeking to capitalize on increased outsourcing trends by aircraft OEMs, avionics
OEMs and airlines. By integrating the employees of Elsinore into its existing
operations, the Company increased by approximately 50% the number of the
Company's engineering professionals dedicated to its systems integration
functions. The acquisition of Elsinore also provided the Company with an
important new customer in the aircraft industry, Daimler Benz Aerospace Airbus
GmbH ("Daimler Benz Aerospace"), and the opportunity to obtain additional new
customers.
The purchase price of Elsinore (including related fees and expenses) was
$2.6 million, which the Company financed through (i) a drawdown under the Senior
Revolver of $1.3 million and (ii) the issuance to the seller of a note (the
"Seller Note") in a maximum principal amount of $1.3 million and bearing
interest at a rate of 15% per annum. The Seller Note was subject to reduction
based on certain working capital adjustments. In February 1997 the Company paid
$956,000 with respect to the Seller Note through a drawdown under the Senior
Revolver. The Company and the seller disagree as to the amount of the working
capital adjustments. See "Notes to Consolidated Financial Statements." In 1996,
Elsinore generated revenues of approximately $3.2 million.
ACQUISITION OF ADS
On September 18, 1996, the Company expanded its presence in flight deck
avionics components with the acquisition of ADS, a manufacturer of dichroic LCD
devices for use with flight deck avionics systems. The acquisition of ADS, which
the Company believes is the largest supplier of dichroic LCD devices to the
commercial aircraft OEMs, is consistent with the Company's strategy to achieve
growth in operations and market share through strategic acquisitions. The
Company believes that the acquisition of ADS will allow it to capitalize on the
upturn in aircraft OEM production by increasing its revenue content per aircraft
as well as by enhancing the Company's position with its major customers.
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<PAGE>
The purchase price of ADS (including related fees and expenses and
post-closing adjustments) was $13.4 million, including $2.0 million which the
Company is obligated to pay over the next three years. The Company financed the
cash portion of the purchase price through: (i) the issuance of $3.0 million of
Series E Preferred Stock and warrants to purchase 49,079 shares of Common Stock;
(ii) the issuance of $3.0 million of Convertible Notes (as defined in "Use of
Proceeds"), together with warrants to purchase 49,079 shares of Common Stock;
and (iii) an increase in and subsequent drawdown under the Company's Senior
Revolver of $5.4 million. In 1996, ADS generated revenues of $10.5 million (or
approximately 14.4% of the Company's pro forma revenues for 1996). See
"Unaudited Pro Forma Consolidated Financial Data."
IFT CONTRACT
On July 30, 1996, the Company entered into an agreement with IFT to
integrate the IFT System into 21 wide-body Swissair aircraft. The first
installation of the IFT System onto a Swissair aircraft was certified in January
1997. As of February 28, 1997, the Company had integrated the IFT System into
two of the 21 aircraft. The Swissair project represents the first broad-based
installation of an interactive in-flight casino-style gaming and video-on-demand
system in a commercial aircraft fleet. The Company will account for revenues
generated under the IFT contract using the percentage of completion method of
accounting. For a discussion of certain issues relating to the IFT System see
"Risk Factors--Dependence on Key Customers."
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,500,000 shares of Common Stock being offered hereby by the Company are
estimated to be $31.3 million, assuming an initial public offering price of
$14.00 per share and after deducting underwriting discounts and commissions and
estimated expenses of the Offering. The Company estimates that it will use such
net proceeds, together with approximately $10.1 million of the proceeds from a
new credit facility (the "New Credit Facility") which the Company will enter
into prior to the consummation of this Offering (see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Description of
New Credit Facility"), to repay amounts due under the Company's revolving line
of credit (the "Senior Revolver"), the Company's senior term notes (the "Senior
Term Notes"), the Company's 15% Convertible Notes due 1997 (the "Convertible
Notes") and the Company's 12% Senior Subordinated Notes due 2001 (the "Senior
Subordinated Notes"), as described below. The Company will not receive any of
the proceeds from shares sold by the Selling Stockholders.
The Company will use approximately $14.6 million to repay in full amounts
due under the Senior Revolver, including accrued interest. Of the amounts
outstanding under the Senior Revolver, $8.0 million bears interest at the
Eurodollar Rate plus 4.5% per annum (10.0% as of December 31, 1996), with the
remainder bearing interest at the lender's prime rate plus 3.25% per annum
(11.5% as of December 31, 1996). Amounts outstanding under the Senior Revolver
become due on September 18, 1999. In September 1996, the Company borrowed $5.4
million under the Senior Revolver to fund a portion of the ADS purchase price.
In December 1996, the Company borrowed $1.3 million and $.4 million under the
Senior Revolver to fund a portion of the purchase prices of Elsinore and the AMP
Facility, respectively. Of amounts used to repay the Senior Revolver, $10.9
million will be paid to Internationale Nederlanden (U.S.) Capital Corporation
("ING") and $3.7 million will be paid to The Provident Bank ("Provident"). In
addition, pursuant to the terms of an agreement entered into among the Company,
ING and Provident, the Company will pay ING and Provident $188,000 and $62,000,
respectively, upon consummation of the Offering (the "Success Fee"). ING Baring
(U.S.) Securities, Inc. is an affiliate of ING.
The Company will use approximately $16.5 million to repay in full amounts
outstanding under the Senior Term Notes, including accrued interest. Of the
amounts outstanding under the Senior Term Notes, $12.0 million bears interest at
the Eurodollar Rate plus 5.0% (10.5% as of December 31, 1996) and the remaining
portion bears interest at a rate equal to 3.5% above the greater of (i) the
lender's prime rate or (ii) the federal funds rate plus 1.5% (11.8% as of
December 31, 1996). The Senior Term Notes mature on September 30, 2001 and
require quarterly payments of principal in varying amounts. The Company issued
$5.0 million of Senior Term Notes in December 1996 to fund a portion of the
purchase price of the AMP Facility. Of amounts used to repay the Senior Term
Notes, $12.4 million will be paid to ING and $4.1 million will be paid to
Provident.
The Company will use approximately $3.0 million to repay in full amounts
outstanding under the Convertible Notes, including accrued interest. The
Convertible Notes bear interest at a rate of 15.0% per annum, which is payable
quarterly. The Company has certain rights to defer cash interest payments. The
Convertible Notes mature on the earlier of June 30, 1997 or the consummation of
the Offering. The Company issued the Convertible Notes in September 1996 to fund
a portion of the purchase price of ADS. The Convertible Notes are held by Nassau
and Electra. See "Certain Transactions."
The Company will use approximately $7.0 million to repay in full the Senior
Subordinated Notes, including accrued interest. The Senior Subordinated Notes
bear interest at a rate of 12.0% per annum and mature on December 31, 2001. The
Senior Subordinated Notes are held by Electra. See "Certain Transactions."
Pending the use of the net proceeds for the purposes described above, the
Company will invest such net proceeds in short-term, investment-grade,
interest-bearing securities.
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<PAGE>
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to finance operations and the
expansion of its business. Any future determination to pay cash dividends will
be made at the discretion of the Company's board of directors (the "Board") and
will be dependent upon the Company's financial condition, operating results,
capital requirements and such other factors as the Board deems relevant.
Further, the Company's debt agreements prohibit payment of dividends, and the
Company expects that any future debt agreements also will include such
prohibitions.
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CAPITALIZATION
The following table sets forth as of December 31, 1996: (i) the consolidated
capitalization of the Company; (ii) the consolidated capitalization of the
Company pro forma for the Recapitalization; and (iii) the consolidated
capitalization of the Company pro forma for the Recapitalization as adjusted for
the sale by the Company of 2,500,000 shares of Common Stock offered hereby and
the application of the net proceeds therefrom as described in "Use of Proceeds"
(assuming an initial public offering price of $14.00 per share), as if these
transactions had occurred on December 31, 1996. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Description of Capital Stock--The Recapitalization"
and the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
PRO FORMA FOR PRO FORMA
ACTUAL RECAPITALIZATION AS ADJUSTED
--------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Short-term borrowings (1).......................................... $ 1,974 $ 1,974 $ 1,974
Current portion of long-term debt
Senior Term Notes................................................ 1,849 1,849 --
Other (2)........................................................ 1,155 1,155 1,155
Convertible Notes.................................................. 2,922 2,922 --
--------- -------- ---------------
Total short-term debt............................................ $ 7,900 $ 7,900 $ 3,129
--------- -------- ---------------
--------- -------- ---------------
Long-term debt:
Senior Revolver.................................................... $ 11,982 $ 11,982 $ --
Senior Term Notes.................................................. 14,920 14,920 --
New Credit Facility (3)............................................ -- -- 8,268
Senior Subordinated Notes.......................................... 6,027 6,027 --
Other (2).......................................................... 1,421 1,421 1,421
--------- -------- ---------------
Total long-term debt............................................. 34,350 34,350 9,689
--------- -------- ---------------
Mandatorily redeemable common stock warrants......................... 6,879 1,426 --
--------- -------- ---------------
Stockholders' equity:
Cumulative convertible preferred stock, $.01 par value............. 13,850 -- --
Common stock, no par value, 4,253,550 shares authorized;
85,593 shares issued and outstanding............................. 216 -- --
Common Stock, $.01 par value, 9,924,950 shares authorized;
2,551,690 shares issued and outstanding Pro Forma for
Recapitalization and 5,051,690 shares Pro Forma as Adjusted
(4).............................................................. -- 26 51
Additional paid-in capital (5)..................................... -- 18,632 51,283
Accumulated deficit (6)............................................ (12,951) (12,090) (16,004)
Foreign currency translation adjustment............................ 121 121 121
--------- -------- ---------------
Total stockholders' equity....................................... 1,236 6,689 35,451
--------- -------- ---------------
Total capitalization (7)............................................. $ 42,465 $ 42,465 $ 45,140
--------- -------- ---------------
--------- -------- ---------------
</TABLE>
- ------------------------------
(1) Includes a $1.3 million promissory note payable to sellers in conjunction
with the acquisition of Elsinore. In February 1997, $1.0 million of this
note was repaid with Senior Revolver borrowings.
(2) Includes capital lease obligations and acquisition financing payable to the
sellers in conjunction with the Minority Interest Acquisition and the
acquisition of ADS.
(3) Reflects New Credit Facility borrowings which, together with the net
proceeds to the Company from the Offering, will be used to repay the debt
outstanding as presented in the table above as of December 31, 1996. See
"Use of Proceeds." Does not reflect borrowings of: (i) $1.0 million used to
fund partial payment of the Elsinore promissory note which occurred
subsequent to December 31, 1996, as discussed in Note (1) above (see "Recent
Developments"); and (ii) $1.4 million to fund the balance of the purchase
price of the AMP Facility and related expenses.
(4) Pro forma as adjusted includes 2,500,000 shares of Common Stock offered by
the Company hereby. Does not include: (i) 527,156 shares of Common Stock
reserved for issuance pursuant to the Share Incentive Plan; and (ii) 70,893
shares of Common Stock issuable upon exercise of the Lender Warrants.
(5) Pro forma as adjusted includes $179,000 attributable to the Lender Warrants
exercisable into 70,893 shares of Common Stock.
(6) Pro forma as adjusted reflects an extraordinary charge of $3.9 million to be
incurred as a result of the debt repayment with the net proceeds to the
Company from the Offering. The extraordinary charge is comprised of: (i)
$2.3 million for unamortized deferred financing costs; (ii) $1.4 million for
unamortized original issue discounts; and (iii) $.2 million for a success
fee.
(7) Total capitalization consists of long-term debt, mandatorily redeemable
common stock warrants and stockholders' equity.
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DILUTION
As of December 31, 1996, giving effect to the Recapitalization, the
Company's net tangible book value (deficit) was $(13.3) million, or $(5.23) per
share of Common Stock. Net tangible book value per share represents the amount
of the Company's total tangible assets reduced by the amount of its total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 2,500,000 shares of Common Stock in
the Offering and the application of the net proceeds therefrom as described in
"Use of Proceeds," the Company's net tangible book value as of December 31, 1996
would have been $5.1 million, or $3.05 per share. This represents an immediate
increase in net tangible book value of $8.28 per share to existing shareholders
and an immediate dilution of $10.95 per share to purchasers of shares of Common
Stock in the Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $ 14.00
Net tangible book value per share before the Offering (1)........ $ (5.23)
Increase per share attributable to new investors................. 8.28
---------
Net tangible book value per share after the Offering............... 3.05
---------
Dilution per share to new investors................................ $ 10.95
---------
---------
</TABLE>
- ------------------------------
(1) Does not include: (i) 527,156 shares of Common Stock reserved for issuance
pursuant to the Share Incentive Plan; and (ii) 70,893 shares of Common Stock
reserved for issuance upon exercise of the Lender Warrants.
The following table sets forth the total consideration and the average price
per share to be paid by the purchasers of the Common Stock offered hereby and
the total consideration paid and average price per share paid by existing
stockholders (based on an assumed initial public offering price of $14.00 per
share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 2,551,690 50.5% $ 18,658,000 34.8% $ 7.31
New investors.......................... 2,500,000 49.5 35,000,000 65.2 14.00
----------- ----- -------------- -----
Total................................ 5,051,690 100.0% $ 53,658,000 100.0%
----------- ----- -------------- -----
----------- ----- -------------- -----
</TABLE>
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations and balance
sheet data for the Company as of and for the years ended December 31, 1992,
1993, 1994, 1995 and 1996 have been derived from the Company's audited
consolidated financial statements. All of the information should be read in
conjunction with the Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996(1)
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 42,620 $ 48,197 $ 47,092 $ 55,839 $ 65,099
Cost of sales........................... 32,470 36,258 36,407 43,463 49,392
----------- ----------- ----------- ----------- -----------
Gross profit............................ 10,150 11,939 10,685 12,376 15,707
Selling, general and administrative
expenses.............................. 6,851 7,953 7,716 9,426 10,747
Amortization of intangible assets....... 1,209 1,210 1,209 1,115 709
----------- ----------- ----------- ----------- -----------
Operating income........................ 2,090 2,776 1,760 1,835 4,251
Interest expense........................ 2,779 2,940 3,244 3,821 4,248
Other (income) expense, net............. (213) (148) 332 382 108
----------- ----------- ----------- ----------- -----------
Loss before provision for income taxes,
cumulative effect of accounting change
and extraordinary item................ (476) (16) (1,816) (2,368) (105)
Provision for income taxes (2).......... (299) (620) (613) (1,078) (712)
----------- ----------- ----------- ----------- -----------
Loss before cumulative effect of
accounting change and extraordinary
item.................................. (775) (636) (2,429) (3,446) (817)
Cumulative effect of accounting change
(3)................................... -- (121) -- -- --
Extraordinary loss from debt refinancing
(4)................................... -- -- (264) -- --
----------- ----------- ----------- ----------- -----------
Net loss................................ $ (775) $ (757) $ (2,693) $ (3,446) $ (817)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
stockholders.......................... $ (938) $ (972) $ (2,891) $ (3,307) $ (6,357)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income (loss) per common share:
Pro forma for the Recapitalization........................................................... $ (.31)
Pro forma as adjusted (5).................................................................... $ .66
Weighted average number of common shares
outstanding:
Pro forma for the Recapitalization........................................................... 2,659
Pro forma as adjusted (6).................................................................... 5,363
OTHER FINANCIAL DATA:
Depreciation and amortization (7)....... $ 3,146 $ 3,553 $ 3,868 $ 4,244 $ 4,012
Bookings (8)............................ 50,325 46,830 47,896 50,785 81,914
Backlog at end of period (9)............ 25,330 23,933 24,493 19,761 44,433
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 5,091 $ (637) $ 11,459 $ 12,583 $ 10,486
Total assets............................ 33,911 34,653 37,685 36,329 69,266
Total debt.............................. 20,604 19,653 23,874 24,672 42,250
Mandatorily redeemable preferred stock
and common stock warrants............. 5,711 5,818 2,329 1,633 6,879
Stockholders' equity (deficit).......... (1,679) (2,618) 766 (1,697) 1,236
</TABLE>
19
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) Includes the effect of the Minority Interest Acquisition beginning February
20, 1996, the date on which the transaction occurred, and the results of ADS
and Elsinore beginning September 18, 1996 and December 5, 1996,
respectively, the dates on which they were acquired.
(2) Prior to the Minority Interest Acquisition in 1996, the Company did not
consolidate the earnings of its Cory Components subsidiary for tax purposes.
As such, despite a consolidated pre-tax loss in each of the years, the
Company recorded a provision for income taxes from 1992 up to the date of
the Minority Interest Acquisition in 1996 which primarily relates to Cory
Components.
(3) Represents the adoption, as of January 1, 1993, of SFAS 109, "Accounting
for Income Taxes."
(4) Represents the write-off of unamortized deferred financing costs, a charge
for unamortized debt discounts and a prepayment penalty incurred as result
of the refinancing by the Company of a substantial portion of its debt in
November 1994 (the "1994 Refinancing").
(5) Pro forma for the Minority Interest Acquisition and the acquisition of ADS
as if they had occurred on January 1, 1996. Adjusted to reflect the sale by
the Company of 2,500,000 shares of Common Stock in the Offering and the
application of the net proceeds therefrom as set forth under "Use of
Proceeds." Excludes a $3.9 million extraordinary charge to be incurred as a
result of the debt repayment with the net proceeds to the Company from the
Offering.
(6) Pro forma for the Recapitalization and adjusted for the 2,500,000 shares of
Common Stock offered hereby by the Company. Includes shares of Common Stock
related to outstanding management options issued pursuant to the Share
Incentive Plan. Does not include 70,893 shares of Common Stock issuable upon
exercise of the Lender Warrants.
(7) Includes deferred financing cost amortization included in interest expense
of $272,000, $295,000, $432,000, $608,000 and $661,000 in 1992, 1993, 1994,
1995 and 1996, respectively.
(8) Bookings represent the total invoice value of purchase orders received
during the period. See "The Company--Backlog."
(9) Orders are generally subject to cancellation by the customer prior to
shipment. The level of unfilled orders at any given date during the year
will be materially affected by the timing of the Company's receipt of orders
and the speed with which those orders are filled. See "The
Company--Backlog."
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Financial Data presents the
results of operations of the Company as if the following transactions had
occurred on January 1, 1996: (i) the Minority Interest Acquisition; (ii) the
acquisition of ADS; (iii) the Recapitalization; and (iv) the sale by the Company
of 2,500,000 shares of Common Stock in the Offering and the application of the
net proceeds therefrom as set forth under "Use of Proceeds." The Unaudited Pro
Forma Consolidated Financial Data does not include the acquisition of Elsinore
because such inclusion would not have had a material effect on such data.
The Unaudited Pro Forma Consolidated Financial Data for the year ended
December 31, 1996 reflects the combination, with appropriate adjustments, of the
consolidated financial statements of the Company for the year ended December 31,
1996 and the unaudited financial statements of ADS for the period from January 1
through September 18, 1996, the date on which it was acquired.
The Unaudited Pro Forma Consolidated Financial Data is not necessarily
indicative of the results of operations that actually would have occurred had
the transactions referenced above been consummated on the dates indicated, or
that may be obtained in the future. The Unaudited Pro Forma Consolidated
Financial Data should be read in conjunction with the Consolidated Financial
Statements and related notes thereto included elsewhere in this Prospectus.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DECRANE
AIRCRAFT AEROSPACE
HOLDINGS, DISPLAY ACQUISITION PRO
INC. SYSTEMS ADJUSTMENTS FORMA
------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................ $ 65,099 $ 7,706 $ -- $ 72,805
Cost of sales........................... 49,392 4,855 284(1) 54,531
------------- ----------- ----------- -----------
Gross profit............................ 15,707 2,851 (284) 18,274
Selling, general and administrative
expenses.............................. 10,904 1,286 (203)(2) 11,987
Amortization of intangible assets....... 709 -- 214(3) 923
Gain on litigation settlement........... (157) -- -- (157)
------------- ----------- ----------- -----------
Operating income........................ 4,251 1,565 (295) 5,521
Interest expense........................ 4,248 52 1,125(4) 5,425
Other expenses.......................... 108 -- (89)(5) 19
------------- ----------- ----------- -----------
Income (loss) before (provision) benefit
for income taxes...................... (105) 1,513 (1,331) 77
(Provision) benefit for income taxes.... (712) (615) 777(6) (550)
------------- ----------- ----------- -----------
Income (loss)........................... $ (817) $ 898 $ (554) $ (473)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Income (loss) applicable to common
stockholders.......................... $ (6,357) $ 898 $ (554) $ (6,013)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Income (loss) per common share:
Pro forma for the Recapitalization.... $ (.31) (11)
Pro forma as adjusted.................
Weighted average number of common shares
outstanding:
Pro forma for the Recapitalization.... 2,659(11)
Pro forma as adjusted.................
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -------------
<S> <C> <C>
Revenues................................ $ -- $ 72,805
Cost of sales........................... -- 54,531
----------- -------------
Gross profit............................ -- 18,274
Selling, general and administrative
expenses.............................. 200(7) 12,187
Amortization of intangible assets....... -- 923
Gain on litigation settlement........... -- (157)
----------- -------------
Operating income........................ (200) 5,321
Interest expense........................ (4,758)(8) 667
Other expenses.......................... -- 19
----------- -------------
Income (loss) before (provision) benefit
for income taxes...................... 4,558 4,635
(Provision) benefit for income taxes.... (566)(9) (1,116)
----------- -------------
Income (loss)........................... $ 3,992 $ 3,519
----------- -------------
----------- -------------
Income (loss) applicable to common
stockholders.......................... $ 9,532(10) $ 3,519
----------- -------------
----------- -------------
Income (loss) per common share:
Pro forma for the Recapitalization....
Pro forma as adjusted................. $ .66(12)
Weighted average number of common shares
outstanding:
Pro forma for the Recapitalization....
Pro forma as adjusted................. 5,363(13)
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Represents an increase in depreciation expense to reflect a $1.7 million
increase in the fair value of assets acquired in the acquisition of ADS. The
acquired assets are being depreciated using the straight-line method over
their remaining estimated useful lives, ranging from two to five years.
(2) Represents: (i) an increase in depreciation expense of $54,000 to reflect
an increase in the fair value and useful lives of assets acquired in the
acquisition of ADS; and (ii) a decrease in selling, general and
administrative expenses of $257,000 reflecting a reversal of corporate
expenses allocated to ADS by its former owner, net of estimated incremental
corporate expenses of ADS to the Company.
(3) Represents an increase in amortization expense of: (i) $26,000 pertaining
to the amortization on a straight-line basis over 26 years of $5.5 million
of goodwill related to the Minority Interest Acquisition; and (ii) $188,000
pertaining to the amortization on a straight-line basis over 30 years of
$7.7 million of goodwill related to the ADS acquisition.
(4) Represents: (i) additional interest expense for indebtedness incurred to
finance the acquisition of ADS and the Minority Interest Acquisition of $1.1
million; and (ii) a reversal of interest expense allocated to ADS by its
former owner of $52,000 for debt obligations not assumed by the Company.
(5) Represents the reversal of the minority stockholder's 25% equity in the
earnings of a consolidated subsidiary prior to the Minority Interest
Acquisition.
(6) Represents a reduction in the provision for income taxes assuming the
taxable income of ADS and the Company's Cory Components subsidiary, which
was formerly 75% owned, was included in the Company's consolidated federal
and state income tax returns and offset against the net operating losses
incurred by the Company's other operations.
(7) Represents incremental general and administrative expenses associated with
regulatory compliance requirements including listing, registrar and transfer
agent fees, quarterly and annual report and proxy statement preparation and
distribution expenses, legal and accounting fees and directors' and
officers' liability insurance premiums.
(8) Represents a decrease in interest expense to reflect the sale by the
Company of 2,500,000 shares of Common Stock in the Offering and the
application of the net proceeds therefrom as set forth under "Use of
Proceeds."
(9) Represents an increase in the provision for income taxes as a result of
increases in pro forma taxable income, net of utilization of net operating
loss carryforwards.
(10) Reflects the elimination of preferred stock dividends and adjustment of
redemption value of the mandatorily redeemable common stock warrants as a
result of the Recapitalization. All of the preferred stock will be converted
into Common Stock and substantially all warrants will be exchanged for
Common Stock in the Recapitalization. See "Description of Capital Stock--The
Recapitalization."
(11) Reflects the Recapitalization. See the Consolidated Financial Statements
and related notes thereto included elsewhere in this Prospectus.
(12) Reflects the Recapitalization, the acquisition of ADS, the Minority
Interest Acquisition and the Offering.
(13) Reflects the shares resulting from the Recapitalization and the Offering.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations have been affected by its history of
acquisitions. The Company commenced operations in October 1990 with the
acquisition of Hollingsead International, Inc. ("Hollingsead"), a manufacturer
of avionics support structures at the time of the acquisition. In October 1991,
the Company acquired Tri-Star Electronics International, Inc. ("Tri-Star"),
Tri-Star Electronics Europe, S.A. ("Tri-Star Europe"), 75% of Cory Components,
and 74.5% of Tri-Star Technologies ("TST") (collectively, the "Tri-Star
Companies") which primarily manufacture contacts, connectors and harness
assemblies for the commercial aircraft industry. In February 1996, the Company
completed the Minority Interest Acquisition. In September 1996, the Company
acquired ADS, a manufacturer of dichroic LCD devices, and in December 1996, the
Company acquired Elsinore and purchased the AMP Facility.
From 1991 to 1995, a period of declining demand for new aircraft, the
Company's management refocused and expanded the businesses the Company acquired
in the Hollingsead and Tri-Star Companies transactions. The Company has
established Hollingsead, which was solely a manufacturing company when acquired,
as a full-service systems integrator concentrated in the retrofit market.
Concurrently, the Company has enhanced the market positions of the Tri-Star
Companies as a leading supplier of certain avionics components in the OEM
market. The Company's ability to improve the performance of its acquired
businesses is reflected in the revenue growth of Hollingsead and the Tri-Star
Companies, which increased 31% on a consolidated basis between 1992 and 1995 and
another 11% from 1995 to 1996. This growth occurred despite a steep decline in
new aircraft deliveries from a peak of approximately 770 in 1991 to a low of
approximately 370 in 1995, according to the S&P Report. Specific contributors to
the Company's growth during this period of decline included: (i) the
establishment of a balanced offering of products and services for the OEM
market, the retrofit market and the aftermarket; (ii) the initiation of private
labeling programs pursuant to which the Company manufactures contacts for other
connector manufacturers, including certain of the Company's competitors; (iii)
the development of new products such as speciality connectors for Boeing's 777
aircraft; and (iv) the diversification into new services such as the integration
of in-flight entertainment systems.
Historically, the Company's 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. Specifically, the
Company's systems integration operations have been dominated in recent years by
sales to AT&T relating to the integration of AT&T's in-flight passenger
telecommunications systems. The Company believes it has lessened its exposure to
these fluctuations by developing capabilities in three additional major systems
integration areas: in-flight entertainment systems, satellite communication and
navigation systems, and safety systems. The Company has secured orders for
integration services in each of these targeted areas: in-flight entertainment
systems for Swissair (through IFT), satellite communication systems for American
Airlines, Inc. ("American Airlines") (through Rockwell Collins and Triad
International Maintenance Corporation ("TIMCO")), and safety systems for United
Parcel Service, Inc. ("UPS"). In addition, the Company continues to provide
systems integration services to AT&T.
Certain of the contact blanks used by the Company in the production of its
contacts are manufactured at the Company's Swiss facility and shipped to its El
Segundo, California facility for plating and assembly. Accordingly, the Company
has been, and will continue to be, exposed to fluctuations in the currency
exchange rate between the U.S. Dollar and the Swiss Franc. Due to the weakening
of the U.S. Dollar against the Swiss Franc in 1995, the cost of contact blanks
in U.S. Dollars increased by $.9 million over 1994 levels. In 1996 and 1997,
solely in an effort to mitigate the effects of currency fluctuations, the
Company entered into forward exchange contracts at fixed rates and plans to
continue this forward exchange program in the future. In 1996, the Company did
not experience any material changes in the cost of contact blanks resulting from
currency fluctuations.
24
<PAGE>
Materials constitute approximately 45% of the cost of a finished contact.
The most significant portion of the material cost is gold, although the use of
copper is also substantial. The Company is and will continue to be exposed to
fluctuations in gold and copper prices. The Company has undertaken programs to
reduce the use of gold in the Company's plating operations. These programs, on a
comparable basis, have saved the Company an estimated $1.3 million in 1996
compared to 1995. In addition to providing cost savings, the Company believes
that these programs reduced its exposure to gold price fluctuations.
Prior to the Minority Interest Acquisition in 1996, the Company did not
consolidate the earnings of its Cory Components subsidiary for tax purposes. As
such, despite a consolidated pre-tax loss in each of the years, the Company
recorded a provision for income taxes from 1992 to 1996 which primarily relates
to Cory Components. Separately, as of December 31, 1996, the Company had net
operating loss carry-forwards ("NOLs") of approximately $3.4 million and $1.4
million for federal and state income tax purposes, respectively. These NOLs
expire in varying amounts through 2011. The amount of NOLs that may be utilized
in the future may be subject to limitations due to a change in control of the
Company.
RESULTS OF OPERATIONS
The following table sets forth the items in the Company's consolidated
statements of operations as percentages of its revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues......................................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................................... 77.3 77.8 75.9
----- ----- -----
Gross profit..................................................................... 22.7 22.2 24.1
Selling, general and administrative expenses..................................... 16.4 16.9 16.7
Amortization of intangible assets................................................ 2.6 2.0 1.1
Gain on litigation settlement, net............................................... -- -- (.2)
----- ----- -----
Operating income................................................................. 3.7 3.3 6.5
Interest expense................................................................. 6.9 6.8 6.5
Other expense, net............................................................... .7 .7 .2
----- ----- -----
Loss before provision for income taxes, and extraordinary item................... (3.9) (4.2) (.2)
Provision for income taxes....................................................... (1.3) (2.0) (1.1)
----- ----- -----
Loss before extraordinary item................................................... (5.2) (6.2) (1.3)
Extraordinary loss from debt refinancing......................................... (.5) -- --
----- ----- -----
Net loss......................................................................... (5.7) (6.2) (1.3)
----- ----- -----
----- ----- -----
Net loss applicable to common stockholders....................................... (6.1) (5.9) (9.8)
----- ----- -----
----- ----- -----
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
REVENUES. Revenues increased $9.3 million, or 16.6%, to $65.1 million for
1996 from $55.8 million for 1995. Revenues increased primarily due to the
following: (i) growth in contact sales driven by new aircraft production rate
increases and growth in the Company's private labeling programs of $6.4 million;
(ii) an increase of sales to IFT of $3.0 million in 1996 relating to a major
systems integration program for Swissair; (iii) the inclusion of $2.8 million of
revenues from ADS which was acquired on September 18, 1996; (iv) an increase in
sales of specialty connectors for cabin management and in-flight entertainment
systems on Boeing's 777 aircraft of $2.4 million; and (v) an increase in sales
of harness assemblies for in-flight entertainment systems of $2.4 million.
Partially offsetting this increase was a decline in sales to AT&T of $9.2
million, reflecting the completion in 1995 of a major systems integration
program primarily for American Airlines.
25
<PAGE>
GROSS PROFIT. Gross profit increased $3.3 million, or 26.9%, to $15.7
million for 1996 from $12.4 million for 1995. Gross profit as a percent of
revenues increased to 24.1% for 1996 from 22.2% for 1995. This increase was
attributable to an improvement in gross profit as a percent of revenues from the
sale of contacts for 1996, partially offset by a decline in higher margin sales
to AT&T. This improvement resulted from sustained price increases, increased
sales volume, lower wage-related expenses and lower material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $1.5 million, or 15.7%, to $10.9
million for 1996 from $9.4 million for 1995. SG&A expenses as a percent of
revenues decreased to 16.7% for 1996 from 16.9% for 1995. SG&A expenses
increased primarily due to the following: (i) the Company added staff to pursue
higher sales to OEMs and to develop capabilities for in-flight entertainment,
navigation and satellite communication and safety systems integration services;
and (ii) the inclusion of SG&A expenses from ADS and Elsinore which were
acquired in 1996. This increase in SG&A expenses was offset partially by the
elimination of $.7 million of expenses of the Minority Interest Acquisition.
OPERATING INCOME. Operating income increased $2.4 million, or 131.7%, to
$4.3 million for 1996 from $1.8 million for 1995. The increase in operating
income resulted from the factors described above and a decline of $.4 million in
amortization of intangible assets as a result of the termination of certain
non-compete agreements.
INTEREST EXPENSE. Interest expense increased $.4 million, or 11.2%, to $4.2
million for 1996 from $3.8 million for 1995. This increase resulted from higher
outstanding indebtedness attributed to the funding of the acquisitions of ADS
and Elsinore and the purchase of the AMP Facility.
NET LOSS. Net loss decreased $2.6 million, or 76.3%, to $.8 million for
1996 from a net loss of $3.4 million for 1995. The decrease in net loss resulted
from the factors described above and a lower tax provision resulting from the
Minority Interest Acquisition in February 1996.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders increased $3.1 million, or 92.2%, to $6.4 million for 1996 from a
net loss applicable to common stockholders of $3.3 million for 1995. The
increase resulted from the change in redemption value of mandatorily redeemable
common stock warrants of $5.0 million (resulting from an increase in the value
of the warrants due to the Company's improved results from operations and the
anticipated price of the Common Stock as a result of the Offering) and the
increase in cumulative convertible preferred stock dividends of $.7 million
(resulting from new issuances of preferred stock), which were offset in part by
the decrease in net loss of $2.6 million. As a result of the Recapitalization,
substantially all warrants will be exchanged for Common Stock and all preferred
stock will be converted into Common Stock. See "Description of Common Stock--The
Recapitalization."
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
REVENUES. Revenues increased $8.7 million, or 18.6%, to $55.8 million for
1995 from $47.1 million for 1994. This increase was attributable to an
additional $6.8 million in sales to AT&T in 1995 relating to a major systems
integration program primarily for American Airlines, as well as increased sales
of: (i) products and services for in-flight entertainment systems of $1.5
million; and (ii) contacts through the Company's private labeling program of
$1.2 million. Partially offsetting this increase was a decline in sales of
contacts to aircraft OEMs of $.5 million in 1995 due to lower production rates
for new aircraft and a decline in systems integration revenues of $.9 million
reflecting the completion of two systems integration programs in early 1995.
GROSS PROFIT. Gross profit increased $1.7 million, or 15.8%, to $12.4
million for 1995 from $10.7 million for 1994. Gross profit as a percent of
revenues decreased marginally to 22.2% for 1995 from 22.7% for 1994. The
decrease in gross profit as a percent of revenues primarily resulted from
increased material cost of approximately $.9 million caused by the weakness of
the U.S. Dollar relative to the Swiss Franc.
26
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $1.7
million, or 22.2%, to $9.4 million for 1995 from $7.7 million for 1994. SG&A
expenses as a percent of revenues increased marginally to 16.9% for 1995 from
16.4% for 1994. This increase resulted from an effort to develop further the
sales, accounting and senior management functions of the Company's operating
subsidiaries in anticipation of continued revenue growth.
OPERATING INCOME. Operating income remained essentially unchanged from 1994
at $1.8 million for 1995 as a result of the factors discussed above and a
marginal decrease in amortization of intangible assets.
INTEREST EXPENSE. Interest expense increased $.6 million, or 17.8%, to $3.8
million for 1995 from $3.2 million for 1994 due to higher outstanding
indebtedness. The 1994 Refinancing resulted in lower effective interest rates
and higher outstanding indebtedness.
NET LOSS. Net loss increased $.8 million, or 28.0%, to $3.4 million for
1995 from a net loss of $2.7 million for 1994 as a result of the factors
described above and a higher tax provision for Cory Components, which was not
consolidated for income tax purposes.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders increased $.4 million, or 14.4%, to $3.3 million for 1995 from a
net loss applicable to common stockholders of $2.9 million for 1994. The
increase resulted from the increase in net loss of $.8 million and the increase
in the cumulative convertible preferred stock dividends of $.2 million resulting
from new issuances of preferred stock, which was offset in part by a $.5 million
adjustment to the redemption value of mandatory redeemable common stock warrants
(resulting from an increase in the value of the warrants due to the Company's
improved results from operations). As a result of the Recapitalization,
substantially all of the warrants will be exchanged for Common Stock and all
preferred stock will be converted into Common Stock. See "Description of Common
Stock--The Recapitalization."
LIQUIDITY AND CAPITAL RESOURCES
The Company has required cash primarily to fund acquisitions and, to a
lesser extent, to fund capital expenditures and for working capital.
In 1996 and 1995, the Company generated cash from operating activities of
$3.0 million and $1.5 million, respectively. Cash from operating activities is
net of interest payments of $3.0 million and $3.3 million for 1996 and 1995,
respectively. With the net proceeds of the Offering to be received by the
Company, the Company estimates that it will repay a significant portion of its
debt. As a result, the related interest payments will decrease substantially.
See "Use of Proceeds."
In 1996 and 1995, the Company used $1.5 million and $1.0 million,
respectively, in cash for working capital. The Company's accounts receivable
consist of trade receivables and unbilled receivables which are recognized
pursuant to the percentage of completion method of accounting. Trade receivables
increased $2.7 million and $1.6 million in 1996 and 1995, respectively, due to
higher sales. Unbilled receivables increased $.4 million in 1996 as a result of
the systems integration program for Swissair (through IFT) that began in
mid-1996. Unbilled receivables decreased by $3.9 million in 1995 as a result of
the completion of a systems integration program for AT&T in 1995. See "Notes to
Consolidated Financial Statements." Inventories increased by $2.7 million and
$3.0 million in 1996 and 1995, respectively, in support of sales growth.
Accounts payable increased by $1.9 million in 1996 primarily as a result of the
increase of inventory in 1996. Accounts payable decreased by $1.0 million in
1995 due to the application of cash made available by the 1994 Refinancing. The
foregoing amounts for accounts receivable and accounts payable are consistent
with the amounts set forth in the Consolidated Statements of Cash Flow contained
herein. However, due to foreign currency translations, such amounts differ from
the amounts set forth in the Consolidated Balance Sheet.
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Net cash used in investing activities was $24.0 million for 1996 and $1.5
million for 1995. Of the $24.0 million used in 1996, $22.6 million related to
the Minority Interest Acquisition in February 1996, the acquisition of ADS in
September 1996 and the acquisition of Elsinore and the purchase of the AMP
Facility in December 1996. Capital expenditures of $1.5 million and $1.2 million
were made in 1996 and in 1995, respectively. Capital expenditures were incurred
to: (i) purchase tooling in support of proprietary products; (ii) upgrade
machinery and equipment; and (iii) increase manufacturing capacity in support of
sales growth. The Company anticipates capital expenditures of approximately $3.2
million in 1997, including $1.0 million for a new management information system,
$.6 million for improved plating controls, and $.4 million for new selective
plating machines. The Company intends to finance such capital expenditures from
working capital and the New Credit Facility.
Net cash provided by financing activities in 1996, was $21.1 million.
Specifically, the Company financed the Minority Interest Acquisition (including
the related fees and expenses) in February 1996 through the sale of its Series D
Convertible Preferred Stock and warrants to Nassau for $6.5 million. In
September 1996 the Company financed the acquisition of ADS (including the
related fees and expenses) through the sale of its Series E Convertible
Preferred Stock and warrants for $3.0 million, the issuance of the Convertible
Notes and warrants for $3.0 million, the issuance of an additional $5.0 million
of Senior Term Notes and an increase and a drawdown under the Senior Revolver of
$.4 million. The Series E Convertible Preferred Stock, Convertible Notes and
related warrants were issued to Nassau and Electra. At the time of the ADS
acquisition, availability under the Senior Revolver was increased by an
additional $1.5 million to fund potential future working capital and capital
expenditure requirements. In December 1996, the Company acquired Elsinore and
purchased the AMP Facility. The acquisition of Elsinore was financed by the
Seller Note and $1.3 million borrowed under the Senior Revolver. The initial
cash portion of the purchase price of the AMP Facility was financed through an
increase of $5.0 million in the Senior Term Notes and the balance of $.4 million
through a drawdown under the Senior Revolver. In 1995, repayments of senior debt
and capital lease obligations were offset by increased borrowings under the
Senior Revolver, resulting in DE MINIMIS net cash provided by financing
activities.
Cash remained unchanged in 1996 and increased $.1 million in 1995 due to the
factors described above. Availability under the Senior Revolver as of December
31, 1996 was $3.8 million versus $.7 million as of December 31, 1995. Such
increase in availability was a result of a $3.1 million increase in the maximum
borrowings permitted under the Senior Revolver, net of the financing for the
acquisitions of ADS and Elsinore and the purchase of the AMP Facility, as
discussed above.
As of December 31, 1996, the maximum amount which the Company could borrow
under the Senior Revolver was $15.8 million and the principal amount outstanding
was $12.0 million. Of the amounts outstanding under the Senior Revolver, $8.0
million bear interest at the Eurodollar Rate plus 4.5% per annum (10.0% as of
December 31, 1996) with the remainder bearing interest at the lender's prime
rate plus 3.25% per annum (11.5% as of December 31, 1996). The Senior Revolver
becomes due on September 18, 1999. The Company has obtained a commitment for the
New Credit Facility, as described below.
The Company believes that the current levels of working capital and amounts
available under the New Credit Facility will enable it to meet its liquidity
requirements for 1997.
DESCRIPTION OF NEW CREDIT FACILITY
The Company has obtained a commitment from a commercial lender to provide
the New Credit Facility. The New Credit Facility provides for a $40.0 million
senior revolving credit facility which matures in 2002. The interest rate under
the New Credit Facility initially will be, at the option of the Company, either
the prime rate or 1% above the LIBOR rate. The interest rate will be reset
quarterly based upon a ratio of debt to the Company's earnings before interest,
taxes, depreciation and amortization ("EBITDA"), pro forma (for acquisitions)
for the 12 month period ending on such date. The maximum
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interest rate under the New Credit Facility will be either .75% above the prime
rate or 2.0% above the LIBOR rate. Following the Offering the Company
anticipates it will have availability under the New Credit Facility of
approximately $29.9 million. The New Credit Facility will contain restrictive
and financial covenants, including a restriction on acquisitions having a
purchase price in excess of $10 million. The financial covenants include: (i) a
minimum interest coverage ratio of 3.0 to 1.0 in the first and second years, 4.0
to 1.0 in the third and fourth years, and 5.0 to 1.0 in the fifth year of the
New Credit Facility; (ii) a maximum senior debt to EBITDA ratio of 3.0 to 1.0 in
the first and second years, 2.75 to 1.0 in the third and fourth years, and 2.50
to 1.0 in the fifth year of the New Credit Facility; (iii) a minimum net worth;
and (iv) a minimum working capital ratio of 0.33 (defined as current assets
(less inventory) divided by the sum of current liabilities plus amounts
outstanding under the New Credit Facility). The New Credit Facility will be
guaranteed by each of the Company's subsidiaries and be secured by substantially
all the assets of the Company and its subsidiaries. There can be no assurance
that the Company will enter into the New Credit Facility; however, it is a
condition to the consummation of the Offering that the Company obtain a new
credit facility in an amount of $40.0 million.
At various times since its inception, the Company was not in compliance with
certain financial covenants contained in its debt agreements. In each instance
such non-compliance was waived by the lenders. Since March 1996, the Company has
been in compliance with all financial covenants contained in its existing debt
agreements. In the event that the Company is unable to remain in compliance with
the covenants contained in the New Credit Facility, the lender could declare all
amounts owed under such facility to be immediately due and payable, which could
have a material adverse effect on the Company.
ENVIRONMENTAL MATTERS
The Company is 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 or properties affected by hazardous substances. In addition, certain
environmental laws, such as CERCLA, and similar state laws impose strict,
retroactive, and joint and several liability upon persons responsible for
releases or potential releases of hazardous substances. Some risk of
environmental liability is inherent in the nature of the Company's business, and
the Company might in the future incur material costs to meet current or more
stringent compliance, cleanup, or other obligations pursuant to environmental
requirements. See "Risk Factors--Environmental Regulation,"
"Business--Environmental Regulation" and "Business--Legal Proceedings."
FORWARD-LOOKING STATEMENTS
This Prospectus, particularly the sections entitled "Prospectus Summary,"
"Use of Proceeds," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," contains certain
forward-looking statements and other statements that are not historical facts
concerning, among other things, market conditions of the aircraft industry, the
demand for avionics components and systems and future strategic acquisitions.
There can be no assurance that the Company has accurately identified and
properly weighed all of the factors which affect market conditions and demand
for the Company's products and services, that the public information upon which
the Company has relied is accurate or complete or that the Company's analysis of
the market and demand for its products and services is correct and, as a result,
the strategy based on such analysis will be successful. See "Risk Factors" for a
more detailed summary of factors which could affect future results.
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BUSINESS
GENERAL
The Company is a manufacturer of avionics components and a provider of
avionics systems integration services in certain niche markets of the commercial
aircraft industry. The products and services offered by the Company are utilized
primarily in commercial aircraft to connect, support and/or integrate various
avionics systems, including cabin avionics systems and flight deck avionics
systems. The Company's targeted markets consist of commercial aircraft and
avionics OEMs, the commercial aircraft retrofit market and the commercial
aircraft aftermarket. The Company also sells products and services to the
military aircraft market.
The Company seeks to maximize its sales by emphasizing the complementary
nature of its products and services. Components manufactured by the Company
include: (i) contacts (of which the Company believes it is the largest supplier
of bulk contacts to the commercial aircraft OEMs); (ii) connectors (which often
utilize the contacts manufactured by the Company); (iii) harness assemblies
(which often utilize the connectors manufactured by the Company); and (iv)
avionics support structures (which often are packaged with the Company's
connectors and harness assemblies in installation kits). In addition, the
Company manufactures dichroic LCD devices, which are used with flight deck
avionics, and believes it is the largest supplier of such devices to the
commercial aircraft OEMs. The systems integration services provided by the
Company include design and engineering, FAA certification, manufacture of
installation kits and systems installation. The Company manufactures many of the
components required to complete a systems integration project, which it believes
provides it a critical competitive advantage.
The Company was formed in 1989 to capitalize on emerging trends in the
aircraft market through acquisitions. Since its formation, the Company has
completed eight acquisitions of businesses or assets. A summary of these
transactions follows:
<TABLE>
<CAPTION>
YEAR OF APPROXIMATE
TRANSACTION TARGET PRINCIPAL PRODUCTS AND SERVICES(1) PURCHASE PRICE(2)
- ------------- -------------------- ---------------------------------- -----------------
(IN MILLIONS)
<C> <S> <C> <C>
1990 Hollingsead Avionics support structures $ 9.1
1991 Tri-Star Contacts and connectors *(3)
1991 Tri-Star Europe Contact blanks *(3)
1991 TST Wire marking equipment *(3)
1991 Cory Components Connectors and harness assemblies 7.7(4)
1996 ADS Dichroic LCD devices 13.4
1996 Elsinore Engineering services 2.6
1996 AMP Facility Contact blanks 6.8
</TABLE>
- ------------------------
(1) At the time of the transaction.
(2) Includes, where applicable, related fees and expenses and post closing
adjustments.
(3) Although each of Tri-Star, Tri-Star Europe and TST was acquired pursuant to
a separate agreement, the purchase price, which was $10.4 million for all
three entities, was determined in the aggregate.
(4) The Company acquired 75% of Cory Components in 1991 for approximately $2.0
million. In February 1996, the Company acquired the 25% which it did not
already own for approximately $5.7 million.
The Company commenced its operations in October 1990 with the acquisition of
Hollingsead, which, at the time of the acquisition, was solely a manufacturer of
avionics support structures. The Company expanded its manufacturing operations
with the 1991 acquisition of the Tri-Star Companies.
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The Company's management has refocused and expanded the businesses which were
acquired in the Hollingsead and Tri-Star Companies transactions. By capitalizing
on Hollingsead's manufacturing strength in avionics support structures, which
are used extensively in the systems integration process, the Company has
expanded Hollingsead into a full-service systems integrator concentrated in the
retrofit market. Concurrently, the Company has enhanced the market positions of
the Tri-Star Companies as a leading supplier of certain low-cost, high-quality
avionics components. Management has focused on reducing costs, improving quality
and increasing the market penetration of the components manufactured by the
Tri-Star Companies.
In 1996, the Company completed: (i) the acquisitions of ADS and Elsinore;
(ii) the purchase of the AMP Facility; and (iii) the Minority Interest
Acquisition. The acquisition of ADS, a manufacturer of dichroic LCD devices,
which the Company believes is the largest supplier of such products to the
commercial aircraft OEMs, expanded the Company's offering of components used in
flight deck avionics systems. The Company believes that the acquisition of ADS
will allow it to capitalize on the upturn in aircraft OEM production by
increasing its revenue content per aircraft as well as enhancing the Company's
position with its major customers. The acquisition of Elsinore, with its DAS
approval, permits the Company to issue, through Elsinore, on behalf of the FAA,
certification that the designs of aircraft modifications performed in connection
with systems integration work conform to all pertinent FAA requirements. Such
certifications are issued as FAA-approved STCs, which constitute, in effect,
specific FAA design approval for each modification. In addition, the acquisition
of Elsinore enhanced the Company's systems integration capabilities and
increased the number of engineering professionals dedicated to the Company's
systems integration effort by approximately 50%. The acquisition of Elsinore
also provided the Company with an important new customer in the aircraft
industry, Daimler Benz Aerospace, and the opportunity to obtain additional
customers. The Company's purchase of the AMP Facility added contact capability
and capacity which will enable the Company to optimize and expand its contact
manufacturing operations. The AMP Facility enables the Company to produce
contact blanks using a cold-heading manufacturing process which, when used for
high volume production, is more cost effective than the Company's existing screw
machine operations. As a result of the purchase of the AMP Facility the Company
will have the opportunity to make increased sales to certain distributors that
formerly purchased contacts from other entities within AMP.
INDUSTRY OVERVIEW AND TRENDS
The Company participates in the commercial and military segments of the
aircraft industry. Within these segments, the Company sells to commercial and
military aircraft OEMs and major avionics equipment OEMs as well as to the
aircraft retrofit market and aircraft aftermarket.
On December 15, 1996, Boeing and McDonnell Douglas announced that they had
agreed to merge. The merger is subject to certain conditions, including the
receipt of regulatory approvals. Neither Boeing nor McDonnell Douglas has made
any announcements of any changes to their respective businesses following the
merger. The Company is unable to determine at this time the effect, positive or
negative, of the merger should it be consummated.
Prior to the announcement of the merger, the market for commercial aircraft
designed to carry 100 or more passengers was served principally by Boeing,
Airbus and McDonnell Douglas. The market for commercial aircraft designed to
carry fewer than 100 passengers is served by more than a half dozen other
manufacturers. The major systems installed on new commercial and military
aircraft, such as flight deck avionics systems, are produced by a limited number
of OEMs, including AlliedSignal Inc., Rockwell Collins, General Electric
Company, Honeywell, Inc. ("Honeywell"), Raytheon Co. and Sextant Avionique, Inc.
Components and sub-systems for new aircraft are provided by a much more
fragmented group of companies, consisting of numerous smaller, specialized
companies, such as the Company.
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The aircraft retrofit market (the integration of new systems into existing
aircraft) and the aircraft aftermarket (the manufacture and sale of replacement
products for existing aircraft) are served by a highly fragmented group of
companies. Many of these companies were formed primarily in response to
increased outsourcing by airlines of internal engineering capabilities. Products
and services provided within the aircraft aftermarket and aircraft retrofit
market include aircraft replacement components and systems and aircraft repair,
maintenance, overhaul and systems integration services.
The Company believes that there are numerous barriers to entry which limit
access to the aircraft industry. These barriers include: (i) general FAA
certification requirements, including those necessary to perform aircraft
modifications or maintenance; (ii) required compliance with military
specifications for certain products sold to commercial and military markets;
(iii) required compliance with qualification and approval standards imposed by
aircraft and avionics systems OEMs in addition to FAA aircraft manufacturing and
aircraft modification design and installation standards; (iv) reluctance of OEMs
to list new companies as approved vendors on the engineering drawings of the
OEMs (referred to as "print position"); and (v) significant initial capital
investment and tooling requirements necessary for the manufacture of certain
aircraft components and systems.
The Company believes the following trends are affecting the commercial
aircraft industry:
INCREASED DEMAND FOR NEW AIRCRAFT. According to the Boeing Report,
expenditures on new aircraft production are expected to increase from an average
of approximately $34 billion per year for the period 1991 through 1995 to
approximately $46 billion per year for the period 1996 through 2000. There can
be no assurances that the Company will benefit from such increase in aircraft
expenditures. The Boeing Report also estimates that annual deliveries of
commercial aircraft will increase from approximately 400 in 1996 to more than
600 in 1997 and will be between 700 and 800 in 1998. In addition, for the period
1996 through 2000, revenue passenger miles will increase from 1.6 trillion to
2.1 trillion and the worldwide fleet of aircraft will increase from 11,500 at
the end of 1996 to approximately 14,000 at the end of 2001 (net of approximately
1,375 retirements). The Company believes that the following factors, among
others, are causing this increase in new aircraft orders: (i) projected
worldwide airline traffic growth of 5.5% per year over the next decade
(including growth of 6.7% per year in the Southeast Asia region and 11.8% per
year in China); (ii) projected cargo traffic growth of 6.6% per year; (iii)
projected increase in the load factor of aircraft currently in service; (iv)
increases in the average age of commercial aircraft; (v) the cost effectiveness
of using new aircraft versus old aircraft; and (vi) a turnaround in worldwide
airline operating performance (from substantial operating losses in 1992 to
approximately $12 billion in operating profit in 1995).
DOWNSIZING AND OUTSOURCING. Airlines have come under increasing pressure to
reduce operating and capital costs associated with providing services. In
response, airlines have increased purchases of certain components from third
parties and have outsourced certain repair, overhaul and retrofit functions.
Similarly, aircraft and avionics OEMs increasingly are reducing their level of
vertical integration by outsourcing more manufacturing, repair and retrofit
functions to third parties. The Company believes that these trends are creating
increased demand for low-cost, high-quality component manufacturers and systems
integrators, such as the Company.
INDUSTRY CONSOLIDATION IN CERTAIN SEGMENTS. Certain segments of the
commercial aircraft industry, such as those that include manufacturers of
components and providers of aircraft retrofit, overhaul and repair services,
have been undergoing consolidation. The Company believes that several factors
are contributing to this consolidation, including: (i) the high level of
fragmentation within these segments; (ii) the continuing efforts by OEMs to
minimize purchasing costs, streamline operations and achieve greater control of
quality through a rationalization of their supplier bases; and (iii) the
increased demands placed on suppliers due to the just-in-time requirements of
their customers.
INCREASED DEMAND FOR CABIN AVIONICS SYSTEMS. In recent years, there has
been an increase in demand for cabin avionics systems, which include in-flight
passenger telecommunications systems as
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well as in-flight entertainment systems, such as video, video-on-demand and
casino-style electronic gaming. In-flight passenger telecommunications systems
primarily are produced by major providers of terrestrial and satellite-based
communication services and in-flight entertainment systems primarily are
produced by a diverse group of companies, ranging from small entrepreneurial
start-ups to large electronics and media companies. In-flight entertainment and
passenger telecommunications systems generally are integrated onto aircraft by
third parties, such as the Company, as well as by airlines and avionics OEMs.
The Company believes that the increased demand primarily has resulted from: (i)
a desire by airlines for additional revenue-producing services; and (ii) longer
flights combined with a demand by airline passengers for more sophisticated
forms of in-flight services.
PROLIFERATION OF NEW AVIONICS TECHNOLOGIES FOR FLIGHT DECKS. The prevalence
of older generation avionics equipment is a primary limiting factor in
establishing a more efficient air traffic management system. The commercial
aircraft industry, including the world's airlines, aircraft and avionics OEMs
and regulatory agencies, have organized to develop the necessary industry
standards, regulations and system requirements for future air navigation systems
("FANS"). Through the implementation of FANS, a complete modernization of both
airborne and ground-based air traffic management systems is expected to be
introduced and to result in significant improvements over existing systems.
Anticipated benefits of FANS include cost savings and enhanced safety. As
overall navigation system accuracy is improved, new navigation systems, such as
satellite communication ("SATCOM") systems and global positioning systems
("GPS"), will be required which the Company believes will present numerous
aircraft avionics retrofit opportunities.
There also has been a proliferation of new safety systems for flight decks
driven by the advent of new technologies and FAA mandates. For example, traffic
collision avoidance systems ("TCAS") and windshear detection systems are now
required for passenger aircraft operating in the U.S. The Company believes that
these safety systems may be mandated for all cargo carriers and flights outside
the U.S. In addition, the Company believes that the FAA will recommend or
mandate additional safety systems such as an enhanced ground proximity warning
system, a predictive (forward-looking) windshear detection system and an
enhanced digital flight data recorder.
COMPETITIVE STRENGTHS
The Company believes that it is well-positioned to take advantage of the
current trends and expected growth in the commercial aircraft industry as a
result of the following competitive strengths:
LEADING POSITIONS IN NICHE MARKETS. The Company successfully has
established strong positions in several specialized niches within the commercial
aircraft industry. The Company believes that it is the largest supplier of bulk
contacts to the commercial aircraft OEMs. The Company also believes it is the
largest supplier of dichroic LCD devices for use by commercial aircraft OEMs and
a major supplier of harness assemblies for use in in-flight entertainment
systems. The Company seeks to utilize its strong market positions to compete
more effectively as well as to capitalize on industry consolidation trends.
RECORD OF SUCCESSFUL ACQUISITIONS. Since its formation in 1989, the Company
has completed eight acquisitions of businesses or assets, including, in 1996,
acquisitions of ADS and Elsinore and the purchase of the AMP Facility. The
Company has demonstrated its ability to: (i) identify strategic acquisition
targets; (ii) complete the acquisition of identified targets; and (iii) increase
revenues of an acquired company, often while refocusing that company's business
strategy. The Company believes that its acquisition success has resulted from
its ability to identify and screen acquisition candidates, implement an
effective cost reduction program and expand and diversify the products and
services provided by an acquired company. In the past, acquisitions by the
Company have resulted in increased indebtedness and interest expense which has
caused the Company to incur net losses in each year since its inception despite
positive operating income. See "Risk Factors--Risks Associated with
Acquisitions."
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<PAGE>
ALIGNMENT WITH LEADING AVIONICS AND AIRCRAFT OEMS AND SUPPLIERS. The
Company seeks to maximize its growth by establishing long-term relationships
with leaders in the Company's primary markets. For example, the Company has
entered into supply agreements with Boeing. The Company believes that through
these agreements it is the supplier of a substantial majority of the bulk
contacts for all aircraft currently manufactured by Boeing and the sole source
supplier of certain connectors for in-flight entertainment systems installed by
Boeing on its 777 aircraft. The Company is also: (i) a primary supplier of
harness assemblies to Matsushita for its in-flight entertainment systems; (ii)
the preferred integrator for the in-flight casino-style electronic gaming and
video-on-demand systems of IFT; and (iii) a preferred systems integrator for the
passenger telecommunications systems of AT&T.
NUMEROUS INDUSTRY AND REGULATORY APPROVALS. The Company's subsidiaries hold
four PMAs from the FAA and 64 supplements to its PMA's authorizing such
subsidiaries to manufacture and install numerous parts in many different
aircraft. The Company's subsidiaries also have three FAA domestic repair station
certificates which authorize them to perform certain aircraft modifications. The
Company employs FAA-certified airframe and power-plant mechanics who are
authorized to perform certain aircraft modification functions. In addition,
through its acquisition of Elsinore, the Company is one of only 26 DASs
worldwide (as of January 22, 1997) which are authorized by the FAA to provide
FAA approval of aircraft modifications. The DAS approval enables the Company,
through Elsinore, to act as a designee of the FAA in issuing certain STCs. The
FAA approvals obtained by the Company's subsidiaries are owned, and may only be
used by, the subsidiary obtaining such approval.
LOW-COST, HIGH-QUALITY OPERATIONS. The Company believes that it has
established low-cost operations through well-defined cost reduction programs,
technological development and the use of vertical integration, where
appropriate. The Company's low-cost operations are demonstrated, for example, by
the growth of the Company's contact private labeling programs under which the
Company supplies contacts to many of its competitors.
The Company uses sophisticated procedures and processes to ensure its
products meet or exceed industry and customer quality requirements. Many
customers formally have recognized the effectiveness of the Company's quality
programs by issuing quality approval letters, awarding quality compliance
certificates and authorizing the Company's inspection personnel to act as the
authorized quality representative of the customer. For example, in February
1996, the Company became the 13th Boeing supplier to receive its D1-9000
Advanced Quality System award.
ENGINEERING AND RELATED TECHNICAL CAPACITY. Approximately 10% of the
Company's employees are engineering professionals, providing the Company with
significant in-house engineering capability and key technical expertise. For
example, the Company believes that it is one of a few companies with the
capability to perform full-service systems integration functions (design and
engineering, FAA certification, installation kit manufacturing and installation
of cabin avionics and flight deck avionics systems on aircraft). This level of
expertise enables the Company to respond rapidly and effectively to the
technical requirements of its customers as well as to capitalize on the
outsourcing trends in the commercial aircraft industry.
MANAGEMENT DEPTH AND EXPERIENCE. The Company has assembled a team of
executives, program managers and engineers from many of the major manufacturers
and suppliers to the aircraft industry. Key management and professional
employees of the Company bring experience with them from such companies as The
B.F. Goodrich Co. ("B.F. Goodrich"), B/E Aerospace, Inc., COMSAT Corp.,
Honeywell, Hughes-Avicom International, Inc., Litton Industries, Inc.,
Matsushita and McDonnell Douglas, providing the Company with a diversity of
commercial aircraft industry expertise. On average, the Company's executive
management has approximately 17 years of related industry experience.
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GROWTH STRATEGY
The Company's principal strategy is to establish and expand leading
positions in high-margin, niche markets within the commercial aircraft industry,
with a focus on the manufacture of avionics components and the integration of
avionics systems. The Company seeks to achieve these leading positions while
maintaining a balance of revenues among the OEM market, the retrofit market and
the aftermarket. The Company believes that such a strategy will position it for
growth over an entire commercial aircraft industry economic cycle. Specifically,
the Company seeks to:
CAPITALIZE ON GROWTH IN COMMERCIAL AIRCRAFT PRODUCTION. The Company
believes its strong market positions and alignment with many of the leading
commercial aircraft industry participants will enable it to capitalize on the
projected increase in commercial aircraft production. The Company believes that
every aircraft currently produced by Boeing, Airbus and McDonnell Douglas
includes components manufactured by the Company. As orders for the Company's
aircraft components have increased, the Company has worked closely with OEMs to
meet their delivery and scheduling requirements. In addition, the Company seeks
to increase its revenue content per plane by introducing new products, expanding
the use of existing products and through strategic acquisitions of companies
which supply components to the OEMs.
EXPLOIT INCREASED DEMAND FOR CABIN AVIONICS SYSTEMS. The Company believes
that the demand for cabin avionics systems is increasing, primarily as a result
of: (i) a desire by airlines for additional revenue-producing services; and (ii)
longer flights combined with a demand by airline passengers for more
sophisticated forms of in-flights services. The Company manufactures components
(contacts, connectors, harness assemblies and avionics support structures) which
are used with cabin avionics systems, as well as provides the systems
integration services necessary to install such systems on aircraft. The Company
believes that it competes effectively in the cabin avionics market by offering
to its customers a full-service organization, capable of providing interconnect
hardware and support structures for cabin avionics systems combined with the
design and engineering, FAA certification and installation services required to
integrate such systems.
EXPAND AND DIVERSIFY SYSTEMS INTEGRATION SERVICES. Historically, the
Company's systems integration services have been concentrated in the in-flight
passenger telecommunications market. In 1995, the Company commenced an effort to
diversify the types of systems which it retrofits onto aircraft by expanding its
expertise and sales efforts to include navigation and satellite communication,
safety, and in-flight entertainment systems. As of December 31, 1996, the
Company had contracted to provide systems integration services for SATCOM
systems (American Airlines through Rockwell Collins and TIMCO), safety systems
(UPS), and in-flight entertainment systems (Swissair through IFT). In addition,
as of December 31, 1996, the Company had drafted proposals in response to more
than 35 active requests for proposals for these and other types of systems.
COMPLETE ADDITIONAL STRATEGIC ACQUISITIONS. The Company seeks to identify
and pursue complementary acquisitions at attractive prices in the aircraft
industry that offer strategic value, such as cost savings, product line
extensions, increased manufacturing capacity or new customer relationships. The
Company initiated discussions with all three of the sellers in its recent
transactions (ADS, Elsinore and the AMP Facility), each of which is of
significant strategic value to the Company. ADS expands the Company's presence
on the flight deck with a product that has a leading niche market position.
Elsinore provides the Company with a DAS approval, increases its engineering
expertise and expands its customer base. The AMP Facility expands the Company's
manufacturing capacity and provides it with new low-cost manufacturing
techniques. While there can be no assurance that the Company will complete
additional acquisitions, the Company believes that the fragmented nature of the
market for aircraft components and systems integration services will provide the
Company with additional opportunities to exploit industry consolidation trends.
See "Risk Factors--Risks Associated with Acquisitions."
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CAPITALIZE ON COMPLEMENTARY PRODUCTS AND SERVICES: The majority of the
Company's products and services are utilized to provide an interface between an
aircraft and its avionics systems. Over the past several years, the Company
increasingly has combined certain of the components which it manufactures to
create higher value-added products. For example, the contacts manufactured by
the Company often are utilized as an integral component of the Company's
connectors. In turn, the connectors manufactured by the Company often are
utilized as primary components of the Company's harness assemblies.
Additionally, in support of the systems integration services provided by the
Company, the Company's harness assemblies often are packaged with its avionics
support structures to form the foundation for the installation kits which are
then sold to the Company's systems integration customers. By emphasizing the
complementary nature of its products and services, the Company seeks to maximize
penetration with existing customers and compete more effectively for new
customers.
PRODUCTS AND SERVICES
The Company's principal products and services are: contacts; connectors;
harness assemblies; avionics support structures; dichroic LCD devices and the
integration of certain cabin and flight deck avionics systems into different
aircraft models. The Company believes that its products are used in each of the
commercial aircraft models currently produced by Boeing, Airbus and McDonnell
Douglas, the three largest commercial aircraft OEMs. In 1996, sales of contacts,
connectors, dichroic LCD devices and systems integration accounted for
approximately 33%, 25%, 14% and 12%, respectively, of the Company's revenues
(pro forma for the acquisition of ADS). No other product or service accounted
for more than 10% of the Company's pro forma revenues in 1996.
CONTACTS. The Company produces precision-machined contacts for use in
commercial aircraft. Contacts conduct electronic signals or electricity and are
installed at the terminus of a wire or an electronic or electrical device. The
Company supplies contacts for use in connectors found in virtually every
electronic and electrical system on the aircraft. Over the last three years the
Company has successfully initiated private labeling programs whereby the Company
manufactures contacts for several of the major connector manufacturers. The
Company sells contacts directly to aircraft and avionics OEMs and, through its
private labeling programs, to connector manufacturers who sell connectors to the
aircraft and avionics OEMs under their brand name. The Company believes that it
is able to sell contacts on a private label basis because of its reputation for
high-quality, its levels of service and its low-cost manufacturing operations.
The Company believes that it is the supplier of a substantial majority of the
bulk contact requirements for all aircraft currently manufactured by Boeing.
CONNECTORS. The Company manufactures and sells to the commercial aircraft
industry electronic and electrical connectors, which provide the electronic or
electrical link between discrete wires and devices. Connectors also serve as a
separable interface that facilitates assembly, installation, repair and removal
of wires or equipment. The Company manufactures a narrow range of electrical and
electronic connectors that are designed and manufactured specifically to operate
in the harsh airborne environment of an aircraft and to meet the critical
performance requirements demanded by the commercial aircraft market. The Company
produces connectors that are used in aircraft galleys, flight decks and control
panels in the passenger cabin. The Company is the sole-source supplier of
certain connectors for in-flight entertainment systems installed by Boeing on
its 777 aircraft.
The Company characterizes its connectors as follows: (i) application
specific--designed and developed by the Company for a specific application,
usually for a single customer; (ii) proprietary--Company-designed connectors
which are sold to the broad market for a variety of applications, often evolving
over time from an application specific product; and (iii) industry
standard--produced in accordance with an industry or military controlled design
or specification and sold to the broad market to
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which the design or specification relates. Examples of the Company's application
specific, proprietary and industry standard connectors are as follows:
APPLICATION SPECIFIC. The Company manufactures a connector used as an
electrical distribution block for Boeing's 777 aircraft. Currently, this
product is used solely for this application; however, in the future, it
could be used in similar applications on other aircraft.
PROPRIETARY. The CQ connector family was originally an application specific
product designed by the Company for use with in-flight entertainment and
cabin management systems on Boeing's 777 aircraft. The CQ connector is now
sold to other customers for other applications.
INDUSTRY STANDARD. The Company sells standard connectors, built to ARINC
specifications, which can be used in many applications without further
testing or certification.
HARNESS ASSEMBLIES. The Company produces harness assemblies for use in
cabin avionics systems, primarily in-flight entertainment systems. A harness
assembly is made from wire, which the Company buys from its vendors, and
connectors, contacts and hardware, which the Company manufactures. The Company
sells its harness assemblies to avionics OEMs. In addition, the Company uses
harness assemblies in its systems integration activities. The Company is
currently a primary supplier of harness assemblies to Matsushita, one of the
largest manufacturers of in-flight entertainment systems.
AVIONICS SUPPORT STRUCTURES. The Company has designed, patented and
produced a wide range of avionics support structures for use on commercial
aircraft. Avionics support structures are typically comprised of trays,
shelving, racks, mounts, and insertion and extraction devices which are combined
with other components to form the installation kit that securely holds and
connects avionics equipment to the aircraft and other systems or devices such as
antennae, flight instruments and power supplies. Avionics support structures are
used to support and environmentally cool (using fans and air chambers) the
avionics equipment, including navigation, communication and flight control
equipment. Avionics support structures are generally located in the avionics bay
of an aircraft and are secured to the frame of the aircraft. The Company's
avionics support structures are recognized by its customers under the Box-
Mount-TM- name which the Company believes is highly respected in the
marketplace. The Company sells its avionics support structures to aircraft and
avionics OEMs, airlines, and major modification centers. In addition, these
products are essential components included in the installation kits which are
used in the Company's systems integration operations.
DICHROIC LCD DEVICES. Through its recent acquisition of ADS, the Company
became a leading manufacturer of dichroic LCDs and modules (which are LCDs
packaged with a backlight source and direct drive electronics) used in
commercial and military aircraft. The Company also manufactures avionics
electronic clocks which utilize its dichroic LCD devices. The Company believes
it is the leading (and often sole-source) supplier of dichroic LCD devices to
aircraft and avionics OEMs and the U.S. military.
The Company's dichroic LCD products, which provide output information to the
flight crew, are used in a variety of flight deck applications, including flight
control systems, fuel quantity indicators, airborne communications and safety
systems. Dichroic LCD products are widely used in the aerospace industry because
of their high performance characteristics and custom design. Key performance
characteristics of dichroic LCD devices include high readability in sunlight and
darkness, ability to withstand wide temperature fluctuations and readability
from extreme viewing angles. During the development phase of flight deck
avionics, the Company works closely with its customers to develop products that
meet the customer's requirements which are subsequently incorporated into new or
modified flight decks.
The Company's clocks utilize its dichroic LCD technology and are suitable
for use in general aviation, business, commercial and military aircraft. The
Company believes that it is the only clock manufacturer which has designed a
line of clocks capable of serving all types of aircraft.
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SYSTEMS INTEGRATION. The Company performs all of the functions necessary to
retrofit an existing aircraft with an avionics system that previously did not
exist on the aircraft. As a full-service systems integrator, the Company
provides design and engineering, FAA certification, installation kit
manufacturing and systems installation services required to retrofit an aircraft
with a new system. A summary of these functions follows:
DESIGN AND ENGINEERING. The Company provides a full range of systems,
electrical and mechanical engineering services to its customers through its
staff of qualified and experienced engineers and program management
personnel. The Company's engineers work proactively with its customers in
all phases of the systems integration effort to achieve an engineering
design data package. This engineering design data package provides
information to: (i) certify product compliance with applicable industry and
FAA standards and regulations; (ii) define the manufacturing requirements
for kit implementation; and (iii) provide installation definition for actual
installation of the system onto aircraft.
FAA CERTIFICATION. The Company employs on a full-time basis or contracts
for FAA-certified designated engineering representatives ("DERs") to
evaluate the engineering design data package, coordinate compliance testing
to applicable FAA regulations and obtain formal FAA approval of the
engineering design data package. These DERs facilitate FAA approval of the
Company's products and services. In general, DERs evaluate the design of an
aircraft modification, part or system, ensure compliance with the applicable
Federal Aviation Regulations and oversee product testing to ensure the
airworthiness of the aircraft as modified. DERs also either issue, on behalf
of the FAA, certain approvals, or work with the FAA to obtain certain
approvals directly from the FAA. Significant aircraft modifications by
anyone other than the aircraft manufacturer require the issuance of an STC,
which constitutes an FAA determination that the design of the modification
meets all pertinent FAA requirements. STCs may be issued directly by the FAA
or on behalf of the FAA by an approved DAS. The acquisition of Elsinore and
its DAS approval enables the Company to issue STCs for certain modifications
without applying directly to the FAA for such certifications.
INSTALLATION KIT MANUFACTURE. The Company ordinarily applies for and
receives multi-aircraft STCs which constitute design approval for a
modification which may be applied to any aircraft of a particular type. The
approved modifications commonly are referred to as "installation kits." Such
installation kits generally include: (i) parts, components, and
sub-assemblies; and (ii) detailed instructions on approved installation. The
installation kit and all of its elements are defined in the STC in a Master
Data List. Once the Company has an STC, issued directly by the FAA or by the
Company's DAS through Elsinore, the Company applies to the FAA for a PMA or
a supplement to an existing PMA, which allows the Company to manufacture the
installation kit in accordance with the approved design and data package.
SYSTEMS INSTALLATION. The Company employs a dedicated team of FAA-certified
mechanics and repairmen to ensure proper installation of the installation
kits and associated avionics systems. These mechanics and repairmen, who
have extensive installation experience over a broad range of commercial
aircraft models, operate within the provisions and limitations of the FAA
repair station certificate which covers the Company's three repair stations.
The Company believes that its staff of kit installation personnel is
sufficiently large and diverse in talent to complete multiple installation
projects simultaneously at different locations.
The Company has focused its systems integration efforts on the following
four general categories of systems: (i) in-flight passenger telecommunications
systems; (ii) in-flight entertainment systems; (iii) SATCOM and navigation
systems; and (iv) safety systems. The Company has targeted these four areas
because it believes significant retrofit opportunities exist due to the advent
of new technologies and the need for the airlines to: (i) capture incremental
revenues without increased capital investment (in-flight passenger
telecommunications and in-flight entertainment); (ii) satisfy increased safety
and
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regulatory requirements; and (iii) reduce operating expenses (SATCOM). A summary
of recent Company activity in each of these categories follows:
IN-FLIGHT PASSENGER TELECOMMUNICATIONS SYSTEMS. The Company is a systems
integrator of in-flight passenger telecommunications systems for AT&T. The
Company has provided installation kits to AT&T for telephones on over 1,000
aircraft, as well as design and engineering and certification services for
certain of these aircraft. The Company is currently involved in proposals to
other in-flight passenger telecommunications systems providers.
IN-FLIGHT ENTERTAINMENT SYSTEMS. The Company is the preferred systems
integrator for IFT. IFT is a publicly traded company which has designed a
digital interactive passenger entertainment system which provides for
video-on-demand, video games, and casino-style electronic gaming in which
the aircraft passenger can gamble using a credit card. In July 1996, the
Company entered into an agreement with IFT to fully integrate the IFT System
into 21 wide-body aircraft for Swissair. The Swissair contract is the first
large-scale commercial application of the IFT System. Delays in installation
or problems in implementation of the IFT System may result in the deferral
or loss of potential revenues from IFT. For a discussion of certain issues
relating to the IFT System, see "Risk Factors--Dependence on Key Customers."
SATCOM AND NAVIGATION SYSTEMS. The Company presently is providing systems
integration services in support of SATCOM systems. The Company recently
completed efforts as a systems integrator for SATCOM systems on certain U.S.
Government aircraft and has subsequently been awarded another contract.
Presently, the Company is providing the systems integration services for
SATCOM systems on 10 Airbus A300 for American Airlines (through Rockwell
Collins and TIMCO). The Company has also entered into agreements to provide
systems integration services for GPS on 13 747-200/300 aircraft and one
MD-82 aircraft. The Company believes that GPS and SATCOM systems (consistent
with the FANS initiative) will be retrofitted into numerous aircraft over
the next few years. In many cases, the airlines are electing to replace
older navigation systems with newer GPS technology due to avionics
obsolescence and significantly increased maintenance costs.
SAFETY SYSTEMS. The Company is an integrator of safety systems which are
required by the FAA, or voluntarily adopted by airlines. The Company
recently was selected to integrate TCAS and heads-up guidance systems
("HGS") on aircraft for UPS. Currently, several major carriers in Europe and
Asia actively are evaluating TCAS. In addition, the Company believes that a
new "forward-looking" windshear detection system will be available by the
end of 1997. The Company believes significant opportunity exists for the
integration of these types of safety systems onto aircraft worldwide.
OTHER. The Company has designed, developed and applied for a patent on an
electrical retract mechanism to support in-flight video systems on McDonnell
Douglas narrow-body aircraft. Due to space constraints, in-flight video systems
generally are not available on McDonnell Douglas narrow-body aircraft. The
Company's retract mechanism is configured to fit in the available space. The
Company actively is marketing the system which management believes is the only
video system available for these narrow-body aircraft. The Company believes that
there are over 500 aircraft in the market which potentially could use such a
system.
INDUSTRY REGULATION AND APPROVALS
The aviation industry is highly regulated in the U.S. by the FAA and is
regulated in other countries by similar agencies to ensure that aviation
products and services meet stringent safety and performance standards. The
Company and its customers are subject to these regulations. In addition, many of
these customers impose their own compliance and quality requirements on the
Company.
The FAA prescribes standards and licensing requirements for aircraft
components, licenses private repair stations and issues DAS approvals giving the
holder the right to certify the design of aircraft
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modifications on behalf of the FAA. As a result of the FAA's oversight of the
Company, the FAA can authorize or deny authorization of many of the services and
products provided by the Company. Any FAA denial of such required authorizations
would preclude the ability of the Company to provide the pertinent service or
product. Should the Company fail to comply with the applicable FAA standards or
regulations, the FAA would have available to it a wide-range of enforcement
options. Such enforcement options include: (i) issuance of a warning letter or a
letter of correction to the Company; (ii) initiation of a civil penalty action
against the Company; (iii) suspension or emergency suspension of a Company
certificate or approval; or (iv) the revocation or emergency revocation of a
Company certificate or approval. The FAA also has the power to issue cease and
desist orders and orders of compliance and to initiate court action for
injunctive relief in support of its enforcement powers. In the event the FAA
were to suspend or revoke a Company certificate or approval on an emergency
basis, the Company would be obliged to cease immediately the manufacture of
products and the delivery of services which require such certificate or
approval. In the event the FAA were to suspend or revoke a Company certificate
or approval on other than an emergency basis, the Company would be permitted to
continue the manufacture of products and the delivery of services which require
such certificate or approval pending any available appeals. However, if the FAA
were to prevail in any such appeal, upon the completion of the appeal process
the Company would be obliged to cease the manufacture of such products and the
delivery of such services. In addition, in the event the FAA were to determine
that the Company's noncompliance with the applicable FAA standards or
regulations created a safety hazard, the FAA could order that the pertinent
component or aircraft immediately cease to be operated until appropriate
corrective action is taken. This could require the grounding of aircraft and/or
the removal of affected components from aircraft already returned to service.
The Company's FAA approvals are owned, and may only be used by, the subsidiary
obtaining such approval.
All aircraft operated by airlines in the United States must be of a type
which has received an FAA type certificate ("TC"). A TC is issued by the FAA
after the FAA determines that the aircraft type design meets the applicable FAA
airworthiness standards. After a type design has been approved through the
issuance of a TC by the FAA, a manufacturer with rights to the TC can apply for
FAA approval to produce the aircraft. This approval is a "production
certificate." Any major change in design of a type certificated aircraft which
is not significant enough to require a new application for a TC under the FAA's
rules must still be approved by the FAA. FAA approval of such a design change
developed by an entity other than the TC holder is issued under an STC. There
are two types of STCs: a "single-aircraft" STC, which may be applied to a single
aircraft, and a "multi-aircraft" STC, which may be applied to all aircraft of a
particular type design, for example, all Boeing 747-400s.
As of December 31, 1996, the Company had obtained 83 STCs, most of which
were obtained on behalf of its customers in connection with the Company's
systems integration services, and substantially all of which are multi-aircraft
STCs. The Company foresees the need to obtain additional STCs so that it can
expand the services it provides and the customers it serves.
Proposed aircraft modifications can be tested and approved and STCs issued
directly by the FAA or on behalf of the FAA by holders of DAS approvals. DAS
approvals are granted to domestic repair stations, air carriers, commercial
operators of large aircraft, and manufacturers which demonstrate their ability
to provide the personnel and follow specific procedures to ensure the issuance
of STCs only for appropriate design modifications. Each DAS approval holder is
specifically limited by the FAA as to the type of STCs which it can issue. The
Company, which holds a DAS approval through Elsinore, can now issue many of the
STCs (both single and multi-aircraft) it requires in connection with its systems
integration operations. This has eliminated the need for the Company, in most
instances, to apply to the FAA for STC approvals, enabling the Company to obtain
STCs more quickly than in the past.
After obtaining an STC, the Company must apply for a PMA or a PMA supplement
to produce the modification installation kit covered by the STC. The Company has
four PMAs and 64 supplements to its PMAs (as of December 31, 1996). Each initial
PMA is, in general, an approval of the manufacturing or
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modification facility's production quality control system. Each supplement
authorizes the manufacture of a particular part in accordance with the
requirements of the corresponding STC. The Company routinely applies for and
receives PMA supplements. The Company also is required to have FAA authority to
perform the installation of a modification kit. This authority is provided
either by the Company's PMAs and supplements or its repair station certificates.
In order for a company to perform certain repair, engineering, installation or
other services on aircraft, its facility must be designated as an FAA-authorized
repair station. The Company has three such repair stations.
In addition to FAA approval of the design, production, and installation of
modifications, the FAA certifies personnel. Selected Company personnel have been
certified by the FAA to perform certain tasks related to the design, production,
and performance of aircraft modifications. Such certified personnel include
mechanics and repairmen. In addition, the FAA delegates some of its oversight
responsibilities, such as testing and inspection responsibilities, to
FAA-certified designees. The Company employs FAA designees on a full-time basis
to facilitate FAA approval and oversight of the Company's activities. In
addition, the Company contracts with additional FAA designees as they are
needed.
Mil-specs are frequently used by both military and commercial customers in
the aerospace industry to define and control characteristics of a product.
Through the use of a government Qualified Parts List ("QPL") and Qualified
Vendor's List ("QVL"), the customer is assured that a product or service has met
all of the requirements set forth in the mil-specs. Parts listed with a QPL
allow others to reliably design parts to interface with such parts as a result
of the mil-spec standards used. The Company believes that it holds more QPLs for
its contact product line than any other manufacturer.
SALES AND MARKETING
The Company's products are sold through a group of geographically assigned
direct sales personnel and agents. Technical product sales support for these
sales personnel is provided through product line managers and the Company's
product engineering personnel. Customer service communication is provided by
geographically assigned sales correspondents located in the Company's
manufacturing facilities. The Company may also assign responsibility for
marketing, sales and/or services for certain key customers to one of the
Company's executives. The Company has five authorized distributors who purchase,
stock and resell certain of the Company's product lines.
The Company's systems integration services are sold by sales managers
employed by the Company who are assigned to geographic territories. Because of
the significant amount of technical engineering work required in the sales
process, these sales managers are generally assisted by a support team which
includes program management, installation and engineering personnel. The support
team specializes in one of: (i) in-flight passenger telecommunications; (ii)
in-flight entertainment; (iii) SATCOM and navigation; or (iv) safety systems. At
such time as the Company obtains a contract for the system proposed by the sales
manager, the support teams continue to manage the project throughout the entire
integration process.
CUSTOMERS
In 1996, the Company sold its products and services to more than 500
customers. The Company's primary customers include aircraft and avionics OEMs,
airlines, aircraft component manufacturers and distributors, and aircraft repair
and modification companies. The Company's three largest customers are Boeing,
Matsushita and AT&T, which accounted for approximately 14.8%, 9.6% and 6.9%,
respectively, of the Company's consolidated revenues (pro forma for the ADS
acquisition) for the fiscal year ended December 31, 1996. In addition, a
significant portion of the Company's sales of components are sold to Boeing
indirectly through sales to suppliers of Boeing.
The Company has entered into a contract to provide systems integration
services for the IFT System on 21 wide-body aircraft for Swissair. The Company's
contract with IFT provides for monthly progress
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payments and the Company will account for revenues generated under the IFT
contract using the percentage of completion method of accounting. As of February
28, 1997, the Company had integrated the IFT System onto two of Swissair's
aircraft and continues to integrate the IFT System onto additional Swissair
aircraft. Under IFT's contract with Swissair, IFT agreed to finance the purchase
price of the IFT System in exchange for a substantial share of potential future
gaming revenues. However, based on IFT's limited experience with the IFT System
on Swissair's aircraft, IFT has indicated that revenues from gaming are
significantly below its expectations. IFT has since announced a change in
corporate strategy whereby it will no longer finance the substantial majority of
the purchase price of the IFT System. Consistent with this new strategy, IFT
also has announced that it is exercising its contractual right to renegotiate
its contract with Swissair in order to shift a greater portion of the purchase
price of the IFT System to Swissair. Such negotiations currently are underway.
IFT currently is in an evaluation period provided for under its contract with
Swissair, during which IFT and Swissair are working together to optimize the
operations and functionality of the IFT System. IFT has indicated that it is
working to improve the reliability of the IFT System through software revisions
and through design improvements to the tray tables used in the economy section
of the aircraft. While the Company expects that it will continue to provide
system integration services to IFT for Swissair's aircraft, there can be no
assurance that (i) IFT and Swissair will successfully renegotiate their contract
or that such renegotiation will not result in a materially reduced scope of work
for the Company; or (ii) that any existing or future technical or design issues
will be resolved. Termination of the contract between Swissair and IFT, a
material change in the scope of work for the Company, or any general delays or
problems with implementation of the IFT System could have a material adverse
effect on the Company.
Most of the Company's sales to Boeing are pursuant to contracts which may be
terminated by Boeing at any time. One contract provides that: (i) if the Company
reduces its prices or leadtimes of like quantity of comparable items to
customers other than Boeing, then the Company must sell on the same terms to
Boeing; and (ii) if other Boeing suppliers offer to sell to Boeing products
comparable to those of the Company at prices more than 5% lower than the prices
specified in such contract, the Company must either similarly reduce its prices
or permit Boeing to delete the affected products from the contract. Another
contract provides that Boeing is not obligated to order any products covered by
the agreement if: (i) Boeing's customers specify an alternate product; (ii) the
product in Boeing's judgement is not technologically competitive at the time;
(iii) Boeing changes the design of an aircraft such that the Company's products
are no longer required for such aircraft; or (iv) Boeing reasonably determines
that the Company cannot support Boeing's requirements for products in the
amounts and within the delivery schedules Boeing requires. The Company's
contracts with Boeing grant Boeing an irrevocable non-exclusive worldwide
license to use the Company's patents, designs, trade secrets, semiconductor mask
works and tooling related to the development, production and maintenance or
repair of products sold to Boeing upon the occurrence of certain events,
including: (i) the acquisition by or transfer to a third party of any of the
Company's rights to manufacture products for Boeing; (ii) upon various defaults
by the Company; and (iii) the bankruptcy of the Company. The Company generally
sells components and services to Matsushita and AT&T pursuant to purchase
orders, but does not have any supply contracts with either company.
MANUFACTURING AND QUALITY CONTROL
The Company manufactures contacts, connectors, harness assemblies, dichroic
LCD devices and avionics support structures. Many of these products involve
similar manufacturing processes which have become core competencies of the
Company. The Company manufactures these products using process-specific
equipment and procedures that have been custom-designed or fabricated to provide
high-quality products at the lowest possible cost to the Company. The Company is
vertically integrated from concept and design through final assembly, testing
and certification for these production processes. The Company believes this
vertical integration is critical to assuring product performance, customer
service and competitive pricing.
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The Company has implemented programs to reduce costs, including overhead
expenses, and maximize return on capital. In some cases these programs have
involved the use of proprietary equipment or processes which have enabled the
Company to reduce costs while maintaining high quality levels. For example, the
Company uses a proprietary selective plating process which allows the Company to
minimize the usage of gold when plating contacts. The Company has enhanced and
expanded the use of this process, as well as other plating processes, which has
enabled it to realize estimated cost savings, on a comparable basis, of
approximately $1.3 million in 1996.
Certain of the Company's customers have developed their own design, product
performance, manufacturing process and quality system standards and require
their suppliers, including the Company, to comply with such standards. As a
result, the Company has developed and implemented comprehensive quality system
policies and procedures which meet or exceed the requirements of its customers.
Many of the Company's customers have recognized formally the effectiveness of
the Company's quality programs by issuing quality approval letters and awarding
quality compliance certificates. In addition, certain customers have authorized
the Company's inspection personnel to act as the authorized quality
representative of the customer. This authorization enables the Company to ship
directly into the inventory stockrooms of these customers, eliminating the need
for receiving inspection activities by these customers.
The Company uses sophisticated equipment and procedures to ensure the
quality of its products and to comply with mil-specs and FAA certification
requirements. The Company performs 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 the Company's manufacturing facilities.
RAW MATERIALS AND COMPONENT PARTS
The components which the Company manufactures require the use of various raw
materials including gold, aluminum, copper, rhodium, plating chemicals and
plastics, the availability and prices of which may fluctuate. The price of raw
materials represents a significant portion of the sales price of many of the
Company's products. Although some of the Company's contracts have prices tied to
the price of raw materials, increases in raw materials prices cannot always be
recovered in product sale prices. The Company also purchases a variety of
manufactured component parts from various suppliers. Raw materials and component
parts are generally available from multiple suppliers at competitive prices.
However, any delay in the Company's ability to obtain necessary raw materials
and component parts may affect its ability to meet customer production needs.
PATENTS AND PROPRIETARY INFORMATION
The Company has various trade secrets, proprietary information, trademarks,
trade names, patents, copyrights and other intellectual property rights which
the Company believes, in the aggregate (but not individually), are important to
its business.
COMPETITION
The Company competes with a number of established companies that have
significantly greater financial, technological and marketing resources than the
Company. The Company believes that its 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 served by the Company are
relatively fragmented with several competitors for each of the products and
services provided by the Company. Due to the global nature of the commercial
airline industry, competition in these categories comes from both U.S. and
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foreign companies. However, the Company knows of no single competitor that
provides the same range of products and services as those provided by the
Company.
The Company's principal competitors in contacts and connectors are large and
diversified corporations which produce a broad range of products. The Company's
principal competitor in the contact market is Deutch Engineered Connecting
Devices, a division of the Deutch Co. In the connector market, the Company's
principal competitors include ITT Canon (a division of ITT Corporation), AMP and
Radiall S.A. Several of these companies are also customers of the Company. The
Company's principal competitors for avionics support structures include smaller
companies such as Barry Controls, Inc., Electronic Cable Specialists ("ECS") and
Vibrachoc, a subsidiary of Compagnie Generale d'Electricite. The main competitor
for dichroic LCD devices is Cristalloid, Inc. Competitors which provide systems
integration services include ECS, the engineering departments of certain
airlines and numerous independent airframe maintenance and modification
companies.
BACKLOG
As of December 31, 1996, the Company had outstanding purchase orders
representing an aggregate invoice price of approximately $44.5 million,
including $7.5 million for ADS, which was acquired on September 18, 1996.
Approximately $6.8 million of such outstanding purchase orders are attributable
to IFT. See "Risk Factors--Dependence on Key Customers." As of December 31,
1995, the Company had outstanding purchase orders representing an aggregate
invoice price of approximately $19.8 million. The Company expects that
approximately 12% of the outstanding purchase orders will not be filled in 1997.
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. Accordingly, the Company's backlog at
December 31, 1996 is not necessarily indicative of actual shipments or sales for
any future period, and period-to-period comparisons from 1995 to 1996 may not be
meaningful.
EMPLOYEES
As of December 31, 1996, the Company had 927 employees (including 128
temporary employees), of whom 94 were engineers (including 1 temporary
employee), 24 were in sales, 716 were in manufacturing operations (including 124
temporary employees) and 93 were in finance and administration (including 3
temporary employees). None of the Company's employees is subject to a collective
bargaining agreement, and the Company has not experienced any material business
interruption as a result of labor disputes since it was formed. The Company
believes that it has a good relationship with its employees.
44
<PAGE>
FACILITIES
The Company leases all of its facilities with terms ranging from one to nine
years as reflected in the following table.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
LOCATION DESCRIPTION FOOTAGE EXPIRATION
- ------------------------------ -------------------------------------------- ------------- ----------
<S> <C> <C> <C>
El Segundo, CA Manufacturing and engineering facility 81,300 2005
Santa Fe Springs, CA Manufacturing and engineering facility 52,000 2000
Hatfield, PA Manufacturing and engineering facility 27,500 1999
Lugano, Switzerland Manufacturing facility 21,000 2001
Irvine, CA Manufacturing facility 16,400 1999
Wiltshire, United Kingdom Manufacturing facility 5,700 1998
El Segundo, CA Executive offices 5,000 2004
Santa Barbara, CA Engineering facility 3,500 1997
Seattle, WA Engineering facility 3,200 1999
Phoenix, AZ Engineering facility 3,000 1997
Copley, OH Executive offices 2,200 1997
Santa Ana, CA Engineering facility 1,000 1999
</TABLE>
The Company believes its properties are in good condition and are adequate
to support its operations for the foreseeable future.
ENVIRONMENTAL MATTERS
The Company is 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, certain
environmental laws, such as CERCLA and similar state laws, impose strict,
retroactive, and joint and several liability upon persons responsible for
releases or potential releases of hazardous substances. The Company has sent
waste to treatment, storage, or disposal facilities that have been designated as
National Priority List sites under CERCLA or equivalent listings under state
laws. The Company has received CERCLA requests for information or allegations of
potential responsibility from the Environmental Protection Agency as to the
Company's use of certain such sites. In addition, some of the Company's
operations are located on properties which are contaminated to varying degrees.
However, the Company has not incurred, nor does it expect to incur, significant
costs to address such contamination because entities other than the Company have
been held primarily responsible for such contamination, the levels of
contamination are sufficiently low so as not to require remediation or the
Company is indemnified against such costs. In most cases the Company does not
believe that its liability for past waste disposal is material. However, in a
limited number of cases the Company does not have sufficient information to
assess its potential liability, if any. It is possible, given the retroactive
nature of CERCLA liability, that the Company will from time to time receive
additional notices of potential liability, relating to current or former
activities.
The Company has been and is in substantial compliance with environmental
requirements and believes it has no liabilities under environmental
requirements, except those which would not be expected to have a material
adverse effect on the Company's business, results of operations, or financial
condition. However, some risk of environmental liability is inherent in the
nature of the Company's business and the Company might in the future incur
material costs to meet current or more stringent compliance, cleanup, or other
obligations pursuant to environmental requirements. See "Risk Factors--
Environmental Regulation," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Environmental Matters" and "Business--Legal
Proceedings."
45
<PAGE>
LEGAL PROCEEDINGS
The Company's manufacturing facility in El Segundo, California, has received
several notices of violation ("NOV") related to its wastewater discharge permit.
The Company has taken various corrective measures. However, the Company
continues to experience difficulty in meeting the wastewater flow limitations
contained in its discharge permit and is evaluating additional measures,
including seeking modification to its permit. If the Company is not able to
resolve these issues, it may be required to install new treatment equipment.
However, the cost for such installation is not expected to be material, and the
Company does not believe that the NOVs will result in any material sanctions.
See "Risk Factors-- Environmental Regulation," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Environmental
Matters" and "Business--Environmental Matters."
The Company is a party to a license agreement with McDonnell Douglas
pursuant to which the Company may request certain data in order to design and
market modifications to aircraft manufactured by McDonnell Douglas. The
agreement provides that the Company will pay McDonnell Douglas a royalty of five
percent of the net sales price of all modifications sold by the Company for
which the Company has requested data from McDonnell Douglas. The Company has
requested data for a single modification, which modification the Company
believes is exempt from the obligation to pay royalties under the agreement.
McDonnell Douglas has made a demand for $650,000 for royalties. The Company does
not believe that it is obligated to McDonnell Douglas in any amount. However,
there can be no assurance that the Company will not be required to pay royalties
to McDonnell Douglas.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding the directors and
executive officers of the Company as of December 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
R. Jack DeCrane 50 Chairman of the Board and Chief Executive Officer
R. G. MacDonald 66 Vice Chairman of the Board
Robert A. Rankin 44 Chief Financial Officer and Secretary
Roger L. Keller 52 Group Vice President of Systems
Charles H. Becker 50 Group Vice President of Components
James R. Bergman (a) 54 Director
Paul H. Cascio (b) 35 Director
Jonathan A. Sweemer (a)(b) 41 Director
</TABLE>
- ------------------------
(a) Member of the Compensation Committee.
(b) Member of the Audit Committee.
The Company is currently evaluating other director candidates and
anticipates that two additional independent, non-management directors will be
added to the Board upon the closing of the Offering or as soon thereafter as
practicable. Upon completion of the Offering, the Company's independent, non-
management directors will continue to represent a majority on each of the
Company's Audit Committee and Compensation Committee.
The Company's Board is divided into three classes. Directors of each class
will be elected at the annual meeting of stockholders of the Company (the
"Annual Meeting") held in the year in which the term of such class expires and
will serve thereafter for three years. Mr. MacDonald serves as a class I
director for a term expiring as of the Annual Meeting in 1998. Messrs. Cascio
and Bergman serve as class II directors for a term expiring as of the Annual
Meeting in 1999. Messrs. DeCrane and Sweemer serve as class III directors for a
term expiring as of the Annual Meeting in 2000.
R. Jack DeCrane is the founder of the Company and has been Chairman of the
Board of Directors of the Company since it was founded in December 1989. Mr.
DeCrane served as President of the Company, which office then included the
duties of chief executive officer, until April 1993 when he was elected to the
newly-created office of Chief Executive Officer. Prior to founding the 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. Mr. DeCrane is his own appointee to the Board under the terms of an
agreement between the Company and certain of its shareholders and lenders. See
"Certain Transactions--Shareholders Agreement."
R. G. MacDonald has been Vice Chairman of the Company since December 1996.
Mr. MacDonald has been a member of the Board since December 1994, and was
President of the Company from April 1993 until December 1996. The office of
President of the Company included the duties of chief operating officer. Mr.
MacDonald was a consultant to the Company from February 1993 to April 1993.
Prior to joining the Company, he served as President and Chief Executive Officer
of MDB Systems, Inc., a manufacturer of ruggedized computer disk systems, from
1990 to 1993.
47
<PAGE>
Robert A. Rankin has been Chief Financial Officer and Secretary of the
Company since November 1993. Mr. Rankin joined the Company in 1992 as Senior
Vice President of Tri-Star, which office then included the duties of chief
financial officer of the Company. Prior to joining the Company, he was Vice
President of Finance for the Chandler Evans Control Systems subsidiary of Coltec
Industries, Inc., an aerospace company, from 1990 to 1992. He was employed by
the aerospace division of B.F. Goodrich from 1977 to 1989 in various capacities,
the most recent of which was as Controller of the aircraft wheel and brake
business unit of B.F. Goodrich.
Roger L. Keller has been Group Vice President of Systems of the Company
since December 1996. Mr. Keller was President of Hollingsead from December 1995
until December 1996, and was employed by the Company as Vice President of
Engineering, Sales and Program Management from May 1994 through November 1995.
Prior to joining the Company, he was Vice President of Engineering for Active
Noise and Vibration Technologies, Inc. from 1992 to 1994, and Vice President of
Sales, Marketing and Program Management for the Airtransport Services division
of Honeywell from 1986 to 1992.
Charles H. Becker has been Group Vice President of Components of the Company
since December 1996. Mr. Becker was President of Tri-Star, from December 1994 to
December 1996. Prior to joining the Company, he was President of the
Interconnect Systems Division of Microdot, Inc. from 1984 to 1994.
James R. Bergman has been a member of the Board since October 1991. He is a
founder and, since 1974, has been a general partner of DSV Associates, DSV
Partners III and DSV Partners IV. Mr. Bergman is DSV's appointee to the Board
under the terms of an agreement between the Company and certain of its
shareholders and lenders. See "Certain Transactions--Shareholders Agreement." In
August 1996, Mr. Bergman became a general partner of Brantley Venture Partners
III, L.P. He is also a director of Maxim Integrated Products, Inc. and Quad
Systems Corporation.
Paul H. Cascio has been a member of the Board since September 1996. He is a
general partner of Brantley Venture Partners. Mr. Cascio also serves as Vice
President and Secretary of Brantley Capital Corporation. Mr. Cascio is
Brantley's appointee to the Board under the terms of an agreement between the
Company and certain of its shareholders and lenders. See "Certain
Transactions--Shareholders Agreement." From December 1987 through May 1996, when
he became a general partner of Brantley Venture Partners, Mr. Cascio was a
managing director and head of the Industrial Manufacturing and Services Group in
the corporate finance department at Dean Witter Reynolds Inc.
Jonathan A. Sweemer has been a member of the Board since February 1996. He
has been a member of Nassau Capital Partners, L.P. since January 1995. From May
1992 to December 1994, Mr. Sweemer was a Vice President for Princeton University
Investment Co. Mr. Sweemer is Nassau's appointee to the Board under the terms of
an agreement between the Company and certain of its shareholders and lenders.
See "Certain Transactions--Shareholders Agreement."
48
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table describes all annual compensation awarded to, earned by
or paid to the Company's Chief Executive Officer and the four-most highly
compensated executive officers other than the Chief Executive Officer
(collectively the "Named Executive Officers") for the fiscal year ended December
31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------------------------- COMPENSATION
OTHER ANNUAL -------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) OPTIONS (2) COMPENSATION
- ----------------------------- ----------- ----------- ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
R. Jack DeCrane $ 206,600 $ 146,000 $ 7,813 34,028 $ --
Chief Executive Officer
R. G. MacDonald 177,437 82,000 13,200 -- --
President and Vice Chairman
of the Board (3)
Robert A. Rankin 139,375 65,000 12,838 19,850 --
Chief Financial Officer and
Secretary
Roger L. Keller 150,000 -- 2,083 19,850 --
President of Hollingsead
and
Group Vice President
of Systems (4)
Charles H. Becker 148,750 65,000 9,103 19,850 30,586(6)
President of Tri-Star and
Group Vice President of
Components (5)
</TABLE>
- ------------------------
(1) Amounts paid by the Company for premiums on health, life and long-term
disability insurance and automobile leases provided by the Company 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) Mr. MacDonald served as President of the Company through December 1996. Mr.
MacDonald became Vice Chairman of the Board in December 1996.
(4) Mr. Keller served as President of Hollingsead through December 1996. Mr.
Keller became Group Vice President of Systems in December 1996.
(5) Mr. Becker served as President of Tri-Star through December 1996. Mr. Becker
became Group Vice President of Components in December 1996.
(6) Relocation costs.
49
<PAGE>
STOCK OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options granted to
the Named Executive Officers during the fiscal year ended December 31, 1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 0% 5% 10%
- ------------------------ -------------- ----------------- ------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Jack DeCrane......... 34,028 23.1% $ 3.66 2006 $ 163,500 $ 344,622 $ 622,498
Robert A. Rankin........ 19,850 13.5% 2.89 2006 110,500 215,154 378,249
Roger L. Keller......... 19,850 13.5% 2.89 2006 110,500 215,154 378,249
Charles H. Becker....... 19,850 13.5% 2.89 2006 110,500 215,154 378,249
</TABLE>
(1) The potential realizable value assumes a rate of annual compound stock
price appreciation of 0%, 5% and 10% from the date the option was granted
over the full option term. These assumed annual compound rates of stock
price appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future prices of the Common Stock
STOCK OPTIONS EXERCISED DURING FISCAL YEAR AND YEAR END VALUES OF
UNEXERCISED OPTIONS
The following table sets forth information about the stock options exercised
by the Named Executive Officers of the Company during the fiscal year ended
December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/ SARS
ACQUIRED OPTIONS/SARS AT FY-END AT FY-END(1)
ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------- ---------- --------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
R. Jack DeCrane................... -- -- 65,221/60,968 $ 516,500/378,250
R. G. MacDonald................... -- -- 34,028/22,686 270,000/180,000
Robert A. Rankin.................. -- -- 12,832/21,197 101,013/121,988
Roger L. Keller................... -- -- 5,671/28,357 43,000/180,000
Charles H. Becker................. -- -- 8,507/25,521 67,000/157,500
</TABLE>
- ------------------------
(1) Assuming an initial public offering price of $14.00 per share as of December
31, 1996, the measuring date, less a liquidity discount of 40%.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
R. Jack DeCrane and the Company have entered into an employment agreement
pursuant to which Mr. DeCrane is to serve as Chief Executive Officer for a term
of four years, effective September 1, 1994. The agreement requires Mr. DeCrane
to devote his full business time to the Company and contains a covenant not to
compete with the Company for a period of 12 months following termination of the
agreement. The agreement provides for various benefits including (i) an annual
salary of $180,000, which is subject to annual review and increase, but not
decrease; (ii) an annual bonus ranging from 30% to 70% of Mr. DeCrane's annual
base salary depending on the level of the Company's achievement of certain
performance goals; and (iii) vested stock options to purchase 77,982 shares of
Common Stock at an exercise price of $.53 per share. Additionally, Mr. DeCrane
is also entitled to life insurance (in an amount at least equal to $1,000,000),
and health care benefits generally provided by the Company to other senior
executives. The agreement also provides for various payments to Mr. DeCrane or
his beneficiaries in the event of his death, disability, or termination without
cause. In the event of his death,
50
<PAGE>
Mr. DeCrane's beneficiaries would be entitled to: (i) a payment equal to Mr.
DeCrane's then current salary for one year plus his remaining bonus through
year-end; and (ii) continuation of certain insurance benefits for one year. Upon
termination due to disability, Mr. DeCrane would be entitled to: (i) receive the
sum of his then current base salary for one year plus his bonus through year
end; and (ii) continuation of certain health benefits for one year. In the event
of a termination without cause by the Company or Mr. DeCrane's resignation due
to a material breach of the agreement by the Company or the Company's request
that he resign or retire, Mr. DeCrane would be entitled to: (i) his then current
base salary for one year and his remaining bonus through the end of the year of
termination plus an amount equal to the amount earned in the immediately
preceding year; (ii) continuation of certain health benefits for a one year
period; and (iii) reimbursement of certain relocation and outplacement expenses.
R. G. MacDonald and the Company entered into a letter agreement, dated June
28, 1993, pursuant to which Mr. MacDonald is to receive for an unspecified term:
(i) an annual base salary of $150,000; (ii) an annual bonus ranging from 20% to
50% of his annual base salary depending on the Company's level of achievement of
certain performance goals; and (iii) the Company's standard benefit package with
the addition of an executive term life insurance policy in the amount of
$200,000. Under the agreement, Mr. MacDonald received options to purchase 56,714
shares of the Company's Common Stock at an exercise price of $.53 per share.
Charles H. Becker and Tri-Star entered into a letter agreement, dated
November 28, 1994, pursuant to which Mr. Becker is to receive for an unspecified
term: (i) an annual base salary of $140,000; (ii) an annual bonus ranging from
10% to 40% of his annual base salary depending on Tri-Star's level of
achievement of certain performance goals; and (iii) other benefits available
under the Company's executive benefits program. Under the agreement, Mr. Becker
received options to purchase 14,179 shares of the Company's Common Stock at an
exercise price of $.53 per share.
SHARE INCENTIVE PLAN
Under the Share Incentive Plan, the Company may grant to its eligible
employees: (i) options ("Options") to purchase shares of Common Stock; (ii)
shares of Common Stock that vest upon the achievement of specified service or
performance conditions within a specified period of time (the "Restricted
Shares"); and (iii) options to receive payments based on the appreciation of
Common Stock ("SARs"). Options, Restricted Shares and SARs are collectively
referred to as "Grants."
Under the Share Incentive Plan, the Company may grant Options that qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or Options that do not so
qualify. The Share Incentive Plan is to be administered by a committee selected
by the Company's Board and composed of at least two members of the Board (the
"Administrator"). The current members of the Administrator are Messrs. Bergman
and Sweemer. Restricted Shares may be granted to key employees of the Company at
the sole discretion of the Administrator. SARs may be specifically granted upon
the terms and conditions specified by the Administrator.
Grants are to be made to key employees of the Company designated by the
Administrator at its sole discretion. The Company has reserved 527,156 shares of
Common Stock for issuance under the Share Incentive Plan. The Share Incentive
Plan terminates on February 1, 2003, and thereafter no Grants may be made.
The exercise price of any Option may not be less than 100% (or 110% in the
case of an Option granted to a person owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company) of the fair market value of the Common Stock at
the time of the grant of the Option. No Option may be exercised after the
expiration of ten years from the date of grant of such Option. No Option may be
sold, pledged, assigned or transferred in any manner otherwise than by will or
the laws of descent or distribution. The purchase
51
<PAGE>
price of any shares of Common Stock purchased under an Option must be paid in
full at the time of the exercise of an Option in cash, by check or, if permitted
by the Administrator, by shares of Common Stock having a fair market value on
the date of the exercise equal to the purchase price or a combination thereof.
In the event that a holder of a Grant (a "Grantee") ceases to be employed by
the Company for any reason other than death, retirement or disability or such
employee is terminated without cause, such Grants shall terminate upon the
termination of his employment, unless extended by the Administrator. In the
event of termination of employment due to death, retirement or disability of a
Grantee or in the event
such termination is without cause, the Administrator may allow the Grantee (or
his estate) to exercise Options and SARs (to the extent exercisable on the date
of termination of employment) at any time within one year after the date of such
termination of employment. Restricted Shares held by a Grantee will vest upon
the Grantee's death and all restrictions will thereupon lapse.
1996 INCENTIVE PLAN
In 1996 the Company introduced an incentive plan (the "1996 Incentive Plan")
for its management personnel tied to the Company's and each operating unit's
annual budget as approved each year by the Compensation Committee of the Board.
The 1996 Incentive Plan matrix provides for an annual bonus of up to 70% of the
employee's base salary if the Company or its relevant operating unit achieves
110% of budget. Fifty percent of the bonus is payable solely based on
performance of the Company or the relevant operating unit and the remainder is
payable upon the achievement by the employee of his or her individual objectives
in the discretion of the Chief Executive Officer of the Company or the President
of the relevant operating unit.
401(k) RETIREMENT PLAN
Effective April 1992, the Company adopted the Lincoln National Life
Insurance Company Non-Standardized 401(k) Salary Reduction Plan and Trust
Prototype Plan (the "401(k)"). 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. There may be employer matching
contributions made under this 401(k) which vest according to a specified
schedule, within six years of service. The full amount vested in a participant's
account will be distributed to a participant following termination of
employment, normal retirement or in the event of disability or death.
DIRECTORS' COMPENSATION
The directors of the Company do not receive annual fees or fees for
attending meetings of the Board of Directors or committees thereof. However,
they are reimbursed for out-of-pocket expenses.
LIMITATION ON DIRECTOR LIABILITY AND INDEMNIFICATION
Pursuant to the Certificate, and as permitted by Delaware law, directors of
the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases unlawful under Delaware law or any transaction in
which a director has derived an improper personal benefit. Such limitation of
liability has no effect on the availability of equitable remedies, such as
injunctive relief or rescission.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following chart provides information as to the beneficial ownership of
Common Stock as of February 28, 1997, as adjusted to give effect to the
Recapitalization (see "Description of Capital Stock-- The Recapitalization") and
the application of the proceeds of the Offering, by: (i) each director and Named
Executive Officer; (ii) directors and executive officers of the Company as a
group; and (iii) each person known to the Company to be the beneficial owner of
5% or more of Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT BEFORE OFFERING
- ----------------------------------------------------------------- ------------------ -----------------------
<S> <C> <C>
Nassau Capital Partners L.P...................................... 840,808(1) 33.0%
22 Chambers Street
Princeton, NJ 08542
Jonathan A. Sweemer.............................................. 840,808(2) 33.0%
22 Chambers Street
Princeton, NJ 08542
DSV Partners, IV................................................. 493,439 19.3%
1920 Main St., Suite 820
Irvine, CA 92614
James R. Bergman................................................. 493,439(3) 19.3%
1920 Main St., Suite 820
Irvine, CA 92614
Brantley Venture Partners II, L.P................................ 490,927 19.2%
20600 Chagrin Blvd., Suite 1150
Cleveland, Ohio 44122
Paul H. Cascio................................................... 490,927(4) 19.2%
20600 Chagrin Blvd., Suite 1150
Cleveland, OH 44122
Electra Investment Trust P.L.C................................... 454,721(5) 17.8%
65 Kings Way
London, England WC2B6QT
R. Jack DeCrane.................................................. 131,522(6) 5.0%
155 Montrose West Avenue, Suite 210
Copley, Ohio 44321
R. G. MacDonald.................................................. 53,878(7) 2.1%
2201 Rosecrans Avenue
El Segundo, California 90245
Robert A. Rankin................................................. 18,219(8) *
2201 Rosecrans Avenue
El Segundo, California 90245
Charles H. Becker................................................ 14,179(9) *
2201 Rosecrans Avenue
El Segundo, California 90245
Roger L. Keller.................................................. 8,507(10) *
2201 Rosecrans Avenue
El Segundo, California 90245
All directors and executive officers as a group (eight
persons)....................................................... 2,051,479(11) 76.2%
<CAPTION>
PERCENTAGE OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER AFTER OFFERING
- ----------------------------------------------------------------- -----------------------
<S> <C>
Nassau Capital Partners L.P...................................... 16.6%
22 Chambers Street
Princeton, NJ 08542
Jonathan A. Sweemer.............................................. 16.6%
22 Chambers Street
Princeton, NJ 08542
DSV Partners, IV................................................. 9.8%
1920 Main St., Suite 820
Irvine, CA 92614
James R. Bergman................................................. 9.8%
1920 Main St., Suite 820
Irvine, CA 92614
Brantley Venture Partners II, L.P................................ 9.7%
20600 Chagrin Blvd., Suite 1150
Cleveland, Ohio 44122
Paul H. Cascio................................................... 9.7%
20600 Chagrin Blvd., Suite 1150
Cleveland, OH 44122
Electra Investment Trust P.L.C................................... 9.0%
65 Kings Way
London, England WC2B6QT
R. Jack DeCrane.................................................. 2.6%
155 Montrose West Avenue, Suite 210
Copley, Ohio 44321
R. G. MacDonald.................................................. 1.1%
2201 Rosecrans Avenue
El Segundo, California 90245
Robert A. Rankin................................................. *
2201 Rosecrans Avenue
El Segundo, California 90245
Charles H. Becker................................................ *
2201 Rosecrans Avenue
El Segundo, California 90245
Roger L. Keller.................................................. *
2201 Rosecrans Avenue
El Segundo, California 90245
All directors and executive officers as a group (eight
persons)....................................................... 39.5%
</TABLE>
- ------------------------
* Less than 1%
(1) Includes 5,174 shares held by NAS Partners I L.L.C., an affiliate of Nassau
Capital Partners, L.P.
(2) Represents 835,634 shares held by Nassau Capital Partners, L.P. and 5,174
shares held by NAS Partners I L.L.C., affiliates of Mr. Sweemer.
(3) Represents shares held by DSV of which Mr. Bergman is a general partner.
(4) Represents shares held by Brantley of which Mr. Cascio is a general partner
of the general partner.
(5) Includes 46,412 shares held by Electra Associates, Inc., an affiliate of
Electra Investment Trust P.L.C.
(6) Includes 65,221 shares which may be acquired upon the exercise of stock
options which are exercisable or will be exercisable prior to 60 days from
February 28, 1997.
(7) Includes 45,371 shares which may be acquired upon the exercise of stock
options which are exercisable or will be exercisable prior to 60 days from
February 28, 1997.
(8) Includes 13,966 shares which may be acquired upon the exercise of stock
options which are exercisable or will be exercisable prior to 60 days from
February 28, 1997.
(9) Includes 8,507 shares which may be acquired upon the exercise of stock
options which are exercisable or will be exercisable prior to 60 days from
February 28, 1997.
(10) Includes 8,507 shares which may be acquired upon the exercise of stock
options which are exercisable or will be exercisable prior to 60 days from
February 28, 1997.
(11) Includes 141,572 shares which may be acquired upon the exercise of stock
options which are exercisable or will be exercisable prior to 60 days from
February 28, 1997.
53
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information regarding the stockholder selling
shares of Common Stock as part of the Offering (the "Selling Stockholder").
These shares will be acquired by the exercise of outstanding warrants to
purchase Common Stock prior to the consummation of the Offering as part of the
Recapitalization. See "Description of Capital Stock--The Recapitalization."
<TABLE>
<CAPTION>
OWNERSHIP OF
COMMON STOCK
OWNERSHIP OF COMMON STOCK PRIOR TO AFTER THE
THE OFFERING NUMBER OF OFFERING
---------------------------------- SHARES ---------------
NUMBER OF PERCENTAGE OF OFFERED NUMBER OF
NAME SHARES OWNERSHIP HEREBY SHARES
- --------------------------------------------------- --------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
Banc One Capital Partners, L.P..................... 97,426 3.8% 97,426 --
<CAPTION>
PERCENTAGE OF
NAME OWNERSHIP
- --------------------------------------------------- -----------------
<S> <C>
Banc One Capital Partners, L.P..................... --
</TABLE>
ING and Provident have granted the underwriters a 30-day option to purchase
up to 84,535 shares solely to cover over-allotments. Prior to the consummation
of the Offering, ING and Provident beneficially owned 116,571 shares (4.4%) and
38,857 shares (1.5%), respectively, of the Common Stock (including shares which
may be acquired upon exercise of the Lender Warrants). If the over-allotment
option is exercised in full, ING and Provident will sell 63,401 and 21,134
shares, respectively, and will beneficially own 53,170 (1.0%) and 17,723 (.3%),
respectively, of the Common Stock (including shares which may be acquired upon
exercise of the Lender Warrants).
54
<PAGE>
CERTAIN TRANSACTIONS
SHAREHOLDERS AGREEMENT
Pursuant to the Fourth Amended and Restated Shareholders Agreement dated
September 18, 1996, as amended on January 10, 1997 (as amended, the
"Shareholders Agreement") among the Company, Nassau, Electra, Brantley, DSV and
certain other parties and subject to election by the Company's stockholders,
Nassau, Brantley and DSV each have the right to nominate a representative to
serve as a director so long as the relevant stockholder owns at least 5% of the
Common Stock (including Common Stock which may be acquired upon exercise of
warrants). Following completion of the Offering, Nassau, Brantley and DSV will
beneficially own 16.6%, 9.7%, and 9.8%, respectively, of the issued and
outstanding Common Stock. The Shareholders Agreement also provides that Mr.
DeCrane may nominate a director for election by the Company's stockholders for
so long as he is the Chief Executive Officer of the Company.
ELECTRA SECURITIES PURCHASE AGREEMENT
Pursuant to a Securities Purchase Agreement dated November 2, 1994 (the
"Electra Securities Purchase Agreement") between the Company and Electra, the
Company issued the Senior Subordinated Notes in the principal amount of $7.0
million and warrants to purchase 266,990 shares of Common Stock for $.035 per
share. Such warrants expire on December 31, 2004 and contain certain rights to
require the Company to repurchase them. Such warrants will be exercised in
connection with the Recapitalization. See "Description of Capital Stock--The
Recapitalization." In addition, the Electra Securities Purchase Agreement
provided that Electra was to receive an advisory fee of $72,000 per annum.
Electra was not a stockholder of the Company at the time it entered into the
Electra Securities Purchase Agreement. In February 1996 the Electra Securities
Purchase Agreement was amended to, among other things, waive certain covenants
relating to the Senior Subordinated Notes, amend certain of Electra's rights to
require the Company to repurchase the warrants held by it and increase Electra's
advisory fee to $25,000 each calendar quarter.
SALES OF SECURITIES
Pursuant to a Securities Purchase Agreement and related Warrant Agreement
dated September 18, 1996 among the Company, Nassau and Electra, the Company
issued to Nassau and Electra the Convertible Notes and warrants to purchase an
aggregate of 49,079 shares of Common Stock (the "Note Warrants") for an
aggregate purchase price of $3.0 million. The Company also sold to Nassau and
Electra an aggregate of 750,000 shares of Series E Preferred Stock and issued
warrants (the "Preferred Stock Warrants") to purchase an additional 49,079
shares of Common Stock for a purchase price of $3.0 million. Each share of
Series E Preferred Stock has a liquidation preference of $4.00, provides for
annual dividends of $.40 and is convertible into approximately .28357 shares of
Common Stock. The Note Warrants and Preferred Stock Warrants are exercisable at
$.035 per share and contain certain rights to require the Company to repurchase
such warrants. All accrued but unpaid dividends will be cancelled and eliminated
if the Offering is consummated by May 5, 1997. The Note Warrants and Preferred
Stock Warrants expire on December 31, 2006. The Series E Preferred Stock will be
exchanged for 212,678 shares of Common Stock in the Recapitalization. The
Preferred Stock Warrants will be exercised in connection with the
Recapitalization and the Note Warrants will be terminated in accordance with
their terms. Prior to entering into the agreements to sell the Convertible
Notes, the Note Warrants, the Series E Preferred Stock and the Preferred Stock
Warrants to Nassau and Electra, the Company sought to obtain investments from
unaffiliated third parties. The Company believes the transaction proposed by
Nassau and Electra contained the most favorable terms available to it at the
time. See "Description of Capital Stock--The Recapitalization."
55
<PAGE>
Pursuant to a Securities Purchase Agreement and related Warrant Agreements
dated February 20, 1996 between the Company and Nassau, the Company issued to
Nassau an aggregate of 2,000,000 shares of Series D Preferred Stock and certain
warrants (the "Nassau Warrants") for an aggregate purchase price of $6.5
million. Each share of Series D Preferred Stock has a liquidation preference of
$3.25, provides for annual dividends of $.325 and is convertible into
approximately .28357 shares of Common Stock. All accrued but unpaid dividends
will be cancelled and eliminated if the Offering is consummated by May 5, 1997.
The Series D Preferred Stock will be exchanged for 567,140 shares of Common
Stock in the Recapitalization. Nassau was not a stockholder of the Company at
the time it purchased the Series D Preferred Stock and Nassau Warrants. See
"Description of Capital Stock--The Recapitalization." The Company has agreed to
exchange the Nassau Warrants for 99,250 shares of Common Stock in the
Recapitalization. The Nassau Warrants entitle the holders to purchase until
December 31, 2003 for $.035 per share (i) up to 55,605 shares of Common Stock
commencing December 31, 1997, (ii) an additional 55,605 shares of Common Stock
commencing December 31, 1998, and (iii) an additional 83,408 shares of Common
Stock commencing December 31, 1999; provided, however, that if the Company
consummates a registered underwritten public offering pursuant to which the
fully diluted common equity of the Company has a value in excess of certain
specified amounts, the Nassau Warrants which become exercisable after the
consummation of such public offering terminate. The Nassau Warrants further
provide that commencing on December 31, 2000 the holders can require the Company
to repurchase the Nassau Warrants for a price based upon a formula.
Pursuant to a Securities Purchase Agreement dated February 9, 1996 among the
Company, R.G. MacDonald, Charles H. Becker, Robert A. Rankin and John Hinson, an
officer of the Company, the Company sold an aggregate of 75,000 shares of Series
C Preferred Stock for a purchase price of $1.50 per share. Each share of Series
C Preferred Stock has a liquidation preference of $1.50, provides for annual
dividends of $.15 and is convertible into approximately .28357 shares of Common
Stock. All accrued but unpaid dividends will be cancelled and eliminated if the
Offering is consummated by May 5, 1997. Such Series C Preferred Stock will be
exchanged for 21,268 shares of Common Stock in the Recapitalization. See
"Description of Capital Stock--The Recapitalization."
Pursuant to a Share Purchase Agreement dated November 2, 1994 among the
Company and Electra, DSV, Brantley and certain other parties the Company issued
an aggregate of 271,471 shares of Series C Preferred Stock for $1.50 per share.
All accrued but unpaid dividends will be cancelled and eliminated if the
Offering is consummated by May 5, 1997. The Series C Preferred Stock will be
exchanged for 76,981 shares of Common Stock in the Recapitalization. See
"Description of Capital Stock--The Recapitalization."
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of preferred
stock, par value $.01 per share.
THE RECAPITALIZATION
On February 19, 1997, the Company, formerly an Ohio corporation, was
incorporated in the State of Delaware. Each outstanding share of common stock
and preferred stock, as well as all warrants and options, were exchanged for
substantially similar securities of the Delaware corporation.
All of the Company's existing stockholders have approved a Recapitalization
of the Company, effective concurrently with the consummation of the Offering,
which includes: (i) the conversion of all outstanding shares of Series A, B, C,
D and E Convertible Preferred Stock (the "Existing Preferred Stock") into Common
Stock; and (ii) the exercise or exchange of all warrants, other than the Lender
Warrants and those which are cancelled pursuant to their terms by the Offering.
In addition, as part of the Recapitalization the Company has effected a 3.53 for
one reverse stock split.
56
<PAGE>
The following table sets forth each of the securities of the Company
outstanding prior to the Recapitalization and the securities into which they
will be converted in the Recapitalization.
<TABLE>
<CAPTION>
PRE-RECAPITALIZATION (1) POST-RECAPITALIZATION (2)
- --------------------------------------------------- ---------------------------------------------------
NUMBER OF NUMBER OF
SHARES OR SHARES OR
SECURITY WARRANTS SECURITY WARRANTS
- -------------------------------------- ----------- -------------------------------------- -----------
<S> <C> <C> <C>
Common Stock.......................... 301,840 Common Stock.......................... 85,593
Series A-E Preferred Stock............ 6,847,705 Common Stock.......................... 1,941,804
Warrants to Purchase Preferred
Stock............................... 52,784 Common Stock.......................... 10,206
Warrants to Purchase
Common Stock(3)................... 2,649,419 Common Stock.......................... 514,087
Lender Warrants....................... 250,000 Lender Warrants....................... 70,893
</TABLE>
- ------------------------------
(1) Prior to a 3.53 to 1 reverse stock split which was effective March 25, 1997.
(2) Reflects the cancellation of certain warrants which will be cancelled upon
consumation of the Offering, but does not give effect to the sale of Common
Stock by the Company in the Offering.
(3) Excludes the Lender Warrants.
Following the Recapitalization, and giving effect to the cancellation of
warrants which will be cancelled upon consummation of the Offering but not
giving effect to the sale of Common Stock by the Company, there will be
2,551,690 shares of Common Stock, warrants to purchase 70,893 shares of Common
Stock and no shares of preferred stock outstanding. In connection with the
Recapitalization, certain of the Company's existing shareholders and the holders
of the warrants have agreed, effective immediately prior to the effectiveness of
the Offering, to waive a number of rights under the agreements by which such
shareholders and holders of the warrants acquired such rights from the Company.
The effect of such waivers would be to release the Company from certain dividend
payment requirements, voting requirements and certain other rights granted to
such shareholders and such holders of the warrants pursuant to their respective
agreements with the Company, as well as eliminating certain negative and
affirmative covenants contained therein. In connection with the
Recapitalization, the Company entered into the Registration Rights Agreement
with such shareholders and warrant holders providing such shareholders and
warrant holders with certain demand and piggyback registration rights with
respect to the Common Stock. See "Description of Capital Stock--Registration
Rights."
COMMON STOCK
As of February 28, 1997, after giving effect to the Recapitalization and
giving effect to the cancellation of warrants which will be cancelled upon
consummation of the Offering but not giving effect to the sale of Common Stock
by the Company in the Offering, there were 2,551,690 shares of Common Stock
outstanding and held of record by 15 stockholders. An additional 425,894 shares
were reserved for issuance upon exercise of all outstanding options and
warrants. Each holder of Common Stock is entitled to one vote for each share
held and does not have cumulative voting rights. See "Description of Capital
Stock--Warrants."
The holders of the Common Stock are entitled to elect all of the directors,
subject to the rights of certain stockholders and lenders under the Shareholders
Agreement to nominate candidates and subject to relevant rights (if any) of the
holders of any outstanding Undesignated Preferred Stock. The Common Stock is not
convertible into any other security. See "Certain Transactions--Shareholders
Agreement."
Subject to preferences that may be applicable to any then outstanding
Preferred Stock and to the restrictions on payments of dividends imposed by the
Company's debt agreements, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors
57
<PAGE>
out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock would be
entitled to share in the Company's assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted the
holders of any then outstanding shares of preferred stock. The Common Stock has
no preemptive or other subscription rights. The outstanding shares of Common
Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Undesignated
Preferred Stock, none of which was issued as of February 28, 1997. The Board,
without further action by the holders of Common Stock, may issue shares of
Undesignated Preferred Stock in one or more series and may fix or alter the
rights, preferences, privileges and restrictions, including the voting rights,
redemption provisions (including sinking fund provisions), dividend rights,
dividend rates, liquidation rates, liquidation preferences, conversion rights
and the description and number of shares constituting any wholly unissued series
of Undesignated Preferred Stock. The Board, without further approval of the
holders of Common Stock, may issue shares of Undesignated Preferred Stock with
rights that could adversely affect the rights of the holders of Common Stock.
The issuance of shares of Undesignated Preferred Stock under certain
circumstances could have the effect of delaying or preventing a change of
control of the Company or other corporate action.
WARRANTS
Pursuant to Warrant Agreements dated September 18, 1996 the Company issued
the Lender Warrants. The Lender Warrants entitle the holders to purchase 70,893
shares of Common Stock for $14.11 per share and expire on September 18, 2006. In
the event the Company pays a dividend or makes a distribution on the Common
Stock, the holders of the Lender Warrants will be entitled to participate in
such dividend or distribution as if they had exercised the Lender Warrants
immediately prior thereto. The holders of the Lender Warrants have certain
rights to require the Company to redeem the Lender Warrants or repurchase the
Common Stock issued upon exercise thereof and the Company has certain rights to
redeem the Lender Warrants or repurchase the Common Stock issued upon exercise
thereof. The holder's rights to require the Company to redeem such warrants and
the Company's rights to redeem such warrants will expire upon the consummation
of this Offering (although such rights may revive under certain limited
circumstances).
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement certain stockholders may,
following the expiration of a 180-day lock-up period, require the Company to use
its best efforts to register such holders' Company securities (including the
Common Stock) under the Securities Act, in each case pursuant to the procedures
and subject to restrictions specified in the Registration Rights Agreement.
Each party to the Registration Rights Agreement may require the Company to
file one registration statement to register securities owned by it for a
four-year period (subject to extension under certain limited circumstances). In
general, the Company is not required to effect the registrations described above
more than once in any 12 month period or, if the Company intends in good faith
to file a registration statement pertaining to an underwritten public offering
by the Company, within 90 days. Also, the Company is not obligated to file more
than four registration statements, provided that if the Company effects a
registration at the request of a stockholder, no further demand by any other
party to such agreement may be made for a period of at least nine months.
In addition to the registration rights described above, following the
expiration of the 180-day lock-up period, each holder which is a party to the
Registration Rights Agreement may cause the Company to use its best efforts to
include such holder's Common Stock in any of the Company's registered offerings
("piggyback offerings") of its Common Stock (other than under Forms S-4 and S-8
of the Securities Act,
58
<PAGE>
or under other forms not available for registering sales to the public) (subject
to reduction to the extent that the managing underwriter, if any, is of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold therein). The Registration Rights Agreement provides that
the Company is to bear the expenses of registrations described above, other than
expenses consisting of underwriting discounts and commissions applicable to
securities sold by holders.
The Registration Rights Agreement also restricts the transfer of certain
shares of Common Stock held by the stockholders party to such agreement prior to
the registration and sale (or other registered disposition) of such Common Stock
under the Securities Act.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.
CERTAIN CERTIFICATE AND BYLAW PROVISIONS AND DELAWARE GENERAL CORPORATION LAW
SECTION 203
The provisions of the Company's Certificate and the Bylaws and the
provisions of Delaware law summarized in the succeeding paragraphs may be deemed
to have anti-takeover effects and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in such stockholder's
best interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
CLASSIFIED BOARD. The Certificate provides that the Board will be divided
into three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board will be elected each year. Currently, the
size of the Board is fixed at five members, who are divided into three classes
serving staggered three-year terms. However, the Company is presently evaluating
other director candidates and anticipates that two additional independent,
non-management directors will be added to the Board upon the closing of the
Offering or as soon thereafter as practicable. The classified board provisions
could have the effect of discouraging a third party from making a tender offer
or otherwise attempting to obtain control of the Company, even though such an
attempt might be beneficial to the Company and the stockholders. The Certificate
also provides that a director may not be removed from office unless for cause
and the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of capital stock (including any warrants with voting rights) entitled to
vote.
MERGERS AND SALES OF ASSETS. The Certificate provides that except as
provided in Section 203 of the General Corporation Law of the State of Delaware
(the "GCLSD") any merger or sale of substantially all of the assets of the
Company which has not been approved by at least two-thirds of the Board must be
approved by the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of capital stock (including any warrants with voting rights)
entitled to vote. Such provision may have the effect of preventing a merger or
sale of substantially all the Company's assets that a stockholder might consider
to be in such stockholder's best interest, including those which might result in
a premium over the market price for the shares held by stockholders.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT. Effective upon
consummation of the Offering the Certificate will prohibit stockholder action by
written consent in lieu of a meeting, and will provide that stockholder action
can be taken only at an annual or special meeting of stockholders. Such
provision may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting, unless a special meeting is called by
the Board, the Chairman of the Board, the Chief Executive Officer or President
of the Company.
ADVANCED NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Subject to the rules and regulations of the Securities and
Exchange Commission regarding the solicitation of proxies, the Bylaws establish
certain advance notice procedures with regard to stockholder proposals and the
nomination, other than by the direction of the Board or a committee thereof, of
candidates for
59
<PAGE>
election as directors. The Company may reject a stockholder proposal or
nomination that is not made in accordance with such procedures.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BYLAWS. The
Certificate provides that the affirmative vote of the holders of at least
66 2/3% of the outstanding shares of capital stock of the Company (including any
warrants with voting rights) then entitled to vote on the matter is required to
amend certain provisions of the Certificate, including those provisions relating
to the classification of the Board of Directors; the filling of vacancies on the
Board; removal of directors; the calling of special meetings of stockholders;
the prohibition of stockholder action without a meeting; indemnification of
directors, officers and others; the limitation on liability of directors; the
approval of any merger or sale of substantially all of the assets of the Company
which has not been approved by at least two-thirds of the Board; the Amendment
of the Bylaws; and the supermajority voting requirements in the Certificate. The
Certificate further provides that the Bylaws may be amended by the Board, except
with respect to the authorized number of directors, or by an affirmative vote of
the holders of not less than 66 2/3% of the total voting power of all
outstanding shares of capital stock of the Company (including any warrants with
voting rights) then entitled to vote on the matter. These voting requirements
will have the effect of making more difficult any amendment by stockholders,
even if a majority of the Company's stockholders believe that such amendment
would be in its best interests.
DELAWARE GENERAL CORPORATION LAW SECTION 203. The Company is subject to
Section 203 of the GCLSD, which imposes restrictions on "business combinations"
(as defined therein) with interested stockholders (being any person who acquired
15% or more of the Company's outstanding voting stock). In general, the Company
is prohibited from engaging in business combinations with an interested
stockholder, unless: (i) before such person became an interested stockholder,
the Board approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced
(excluding for purposes of determining the number of shares outstanding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) on or subsequent to the date on which such person became an
interested stockholder, the business combination is approved by the Board and
authorized at a meeting of stockholders by the affirmative vote of the holders
of two-thirds of the outstanding voting stock of the Company not owned by the
interested stockholder. Under Section 203, the restrictions described above also
do not apply to certain business combinations proposed by an interested
stockholder following the earlier of the announcement of certain extraordinary
transactions involving the Company and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of the Company's directors, if such extraordinary
transaction is approved or not opposed by a majority of the directors who were
directors prior to any person becoming an interested stockholder during the
previous three years or who were recommended for election or elected to succeed
such directors by a majority of such directors. By restricting the ability of
the Company to engage in business combinations with an interested person, the
application of Section 203 to the Company may provide a barrier to hostile or
unwanted takeovers.
VESTING OF MANAGEMENT RIGHTS UPON CERTAIN ACQUISITIONS. The terms of stock
option agreements between the Company and certain members of management provide
that all unvested options granted thereunder will vest upon either: (i) the
acquisition by any one purchaser or group of more than 50% of the voting power
of the stock of the Company; (ii) a replacement during any 12 month period of a
majority of the Board (whose appointment is not endorsed by a majority of the
Board prior to the date of such appointment); or (iii) the acquisition of assets
having more than one-third of the total fair market value of the assets of the
Company by any person or group of persons (a "Change of Control"). As of
February 28, 1997 options to purchase an aggregate of 220,529 shares of Common
Stock were unvested and subject to vesting upon a Change of Control, including
options to purchase 60,968, 22,686, 21,197, 26,656 and 25,521 shares of Common
Stock, by Messrs. DeCrane, MacDonald, Rankin, Keller and Becker, respectively.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 5,051,690 shares of Common Stock to be outstanding after the
Offering, 3,138,951 shares will be available for resale in the public market
without restriction immediately following the Offering if held by holders who
are not "affiliates" of the Company (as defined in the Securities Act). All of
the remaining shares are "restricted securities" within the meaning of Rule 144
adopted under the Securities Act. These restricted securities were issued and
sold by the Company in private transactions in reliance upon exemptions from
registration under the Securities Act. After expiration of the 180-day lock-up
period following the Offering pursuant to agreements with the Underwriters: (i)
all restricted securities will be available for resale pursuant to limitations
of Rule 144; and (ii) the Company, pursuant to its Certificate, may authorize
the issuance of additional shares of Common Stock and shares of one or more
series of voting preferred stock. The issuance of additional shares of capital
stock could result in the dilution of the voting power of the shares of Common
Stock purchased in the Offering. In addition, following the expiration of the
180-day lock-up period, pursuant to the Registration Rights Agreement, certain
stockholders have the right, subject to the terms and conditions of the
Registration Rights Agreement, to require the Company to: (i) effect (in the
aggregate) up to four registrations under the Securities Act covering all or any
portion of the shares of Common Stock held by such stockholders, provided that
if the Company effects a registration at the request of a stockholder, no
further demand may be made by any stockholder for a period of at least nine
months; and (ii) include all or any portion of such stockholders' shares of
Common Stock in any proposed registration by the Company of shares of Common
Stock (subject to reduction to the extent that the managing underwriter, if any,
is of the opinion that such inclusion would adversely affect the marketing of
the securities to be sold therein).
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market will develop, or if
developed, will be sustained after the completion of the Offering. Factors such
as announcements concerning the Company or its competitors, investor perception
of the Company, fluctuations in the Company's operating results and general
market conditions may cause the market price of the Common Stock to fluctuate
significantly. Sales of a substantial number of shares of Common Stock in the
public market after the Offering, or the expectation that such sales could
occur, could adversely affect the market price of the Common Stock and the
Company's ability to raise capital through a subsequent offering of securities.
61
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters") have severally agreed to purchase and the
Company has agreed to sell to them, severally, the aggregate number of shares of
Common Stock set forth opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------ -----------
<S> <C>
Schroder Wertheim & Co. Incorporated........................
Dillon, Read & Co. Inc......................................
-----------
Total................................................... 2,597,426
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the several Underwriters are
obligated, subject to the approval of certain legal matters by their counsel and
certain other conditions, to purchase all the shares of Common Stock offered
hereby (other than those covered by the Underwriters' over-allotment option
described below), if any are purchased. Schroder Wertheim & Co. Incorporated and
Dillon, Read & Co. Inc., as representatives of the several Underwriters (the
"Representatives"), have advised the Company that the Underwriters propose to
offer the shares to the public at the initial public offering price set forth on
the cover page of this Prospectus; that the Underwriters propose initially to
allow a concession not in excess of $ per share to certain dealers,
including the Underwriters; that the Underwriters and such dealers may initially
allow a discount of not in excess of $ per share to other dealers;
and that the initial public offering price and the concession and discount to
dealers may be changed by the Representatives after the initial public offering.
The Company and certain Selling Stockholders, including ING, have granted to
the Underwriters an option, expiring at the close of business on the 30th day
after the date of the Underwriting Agreement, to purchase up to an additional
389,614 shares of Common Stock, at the initial public offering price set forth
on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise the option only to cover
over-allotments, if any, in the sale of shares of Common Stock in the Offering.
To the extent that the Underwriters exercise this option, each Underwriter shall
be committed, subject to certain conditions, to purchase a number of additional
shares proportionate to such Underwriter's initial commitment. If the option is
exercised, the first 84,535 shares will be purchased from certain Selling
Stockholders and the remaining shares will be purchased from the Company. The
Representatives have also agreed to pay a fee of $ to ING Baring (U.S.)
Securities, Inc., an affiliate of ING.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company, certain management stockholders, directors and certain other
stockholders (including ING and Provident in the event the over-allotment option
is not exercised with respect to their shares) have agreed not to offer to sell,
sell, grant any option to purchase or otherwise dispose of any shares of Common
Stock, subject to certain exceptions, for a period of 180 days after the date of
this Prospectus without the prior written consent of Schroder Wertheim & Co.
Incorporated.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price of the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in such negotiations are the Company's results of
operations and financial condition, the prospects for the Company and for the
62
<PAGE>
industry in which the Company operates, the Company's capital structure and
prevailing conditions in the securities market.
The Representatives have informed the Company that the Underwriters do not
intend to confirm shares to accounts over which they exercise discretionary
authority in excess of 5% of the total number of shares offered hereby.
In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The shares of Common Stock are being offered in accordance with the
provisions of the National Association of Securities Dealers, Inc. Conduct
Rules, Rule 2710, paragraph (c)(8). Certain proceeds of the Offering will be
used to repay amounts owing under the Senior Revolver and the Senior Notes, for
which ING acts as managing agent and as a lender. ING, which is an affiliate of
ING Baring (U.S.) Securities, Inc. (and also may be deemed to be an affiliate of
Dillon, Read & Co. Inc.), will receive approximately $24.3 million of the net
proceeds of the Offering (giving effect to the Underwriters' overallotment
option) as a result of: (i) being a lender under the Senior Revolver; (ii) being
a holder of Senior Notes; (iii) being a Selling Stockholder; and (iv) the
Success Fee. Schroder Wertheim & Co. has agreed to act as a qualified
independent underwriter (as defined in the National Association of Securities
Dealers, Inc. Conduct Rules) for the Offering and has agreed to assume the
responsibilities of acting as a qualified independent underwriter in pricing the
Offering and in conducting due diligence.
LEGAL MATTERS
The validity of the Common Stock offered by this Prospectus and certain
other legal matters is being passed on for the Company by Spolin & Silverman,
Santa Monica, California. Certain legal matters will be passed upon for the
Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles, California.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996
and the financial statements of Aerospace Display Systems as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent auditors and
quarterly reports containing unaudited interim financial information for the
first three quarters of each year.
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Act for registration of the shares
of Common Stock offered hereby. This Prospectus
63
<PAGE>
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to do not purport to be complete; with respect to
each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved and each statement shall be deemed qualified
by this reference. The Registration Statement and the exhibits and schedules
thereto may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the public reference facilities of the
Commission's Regional Offices: New York Regional Office, Seven World Trade
Center, Suite 1300, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission also maintains a site on the World
Wide Web (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
64
<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, 1995 and 1996............ F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1994, 1995 and 1996................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
AEROSPACE DISPLAY SYSTEMS (A DIVISION OF ALLARD INDUSTRIES, INC.)
Report of Independent Accountants....................................... F-43
Balance Sheets as of December 31, 1994 and 1995 and September 18, 1996
(Unaudited)........................................................... F-44
Statements of Income for the years ended December 31, 1993, 1994 and
1995, the nine months ended September 30, 1995 (Unaudited) and the
period from January 1 to September 18, 1996 (Unaudited)............... F-45
Statements of Changes in Owner's Net Investment for the years ended
December 31, 1993, 1994 and 1995 and the period from January 1 to
September 18, 1996 (Unaudited)........................................ F-46
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995, the nine months ended September 30, 1995 (Unaudited), and the
period from January 1 to September 18, 1996 (Unaudited)............... F-47
Notes to Financial Statements........................................... F-48
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
DeCrane Aircraft Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
DeCrane Aircraft Holdings, Inc. and its subsidiaries at December 31, 1995 and
1996 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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.
PRICE WATERHOUSE LLP
Cleveland, Ohio
March 7, 1997, except for the
reverse stock split described
in Note 1, which is as of
March 25, 1997
F-2
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1996
-------------------- PRO FORMA FOR
1995 1996 RECAPITALIZATION
--------- --------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 305 $ 320 $ 320
Accounts receivable, net.................................. 8,792 13,185 13,185
Inventories............................................... 14,116 19,573 19,573
Prepaid expenses and other current assets................. 362 812 812
--------- --------- --------
Total current assets.................................... 23,575 33,890 33,890
Property and equipment, net................................. 7,387 12,187 12,187
Other assets, principally intangibles, net.................. 5,367 23,189 23,189
--------- --------- --------
Total assets............................................ $ 36,329 $ 69,266 $ 69,266
--------- --------- --------
--------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Short-term borrowings..................................... $ 911 $ 1,974 $ 1,974
Current portion of long-term obligations to unaffiliated
lenders................................................. 1,612 3,004 3,004
Convertible subordinated notes payable to related
parties................................................. -- 2,922 2,922
Accounts payable.......................................... 5,079 7,420 7,420
Accrued expenses.......................................... 3,046 7,241 7,241
Income taxes payable...................................... 344 843 843
--------- --------- --------
Total current liabilities............................... 10,992 23,404 23,404
--------- --------- --------
Long-term liabilities
Long-term obligations
Unaffiliated lenders.................................... 16,316 28,323 28,323
Related parties......................................... 5,833 6,027 6,027
Deferred income taxes..................................... 3,110 3,312 3,312
Minority interests........................................ 142 85 85
--------- --------- --------
Total long-term liabilities............................. 25,401 37,747 37,747
--------- --------- --------
Commitments and contingencies (Note 17)
Mandatorily redeemable common stock warrants................ 1,633 6,879 1,426
--------- --------- --------
Stockholders' equity (deficit)
Cumulative convertible preferred stock, no par value ($.01
par value as of February 19, 1997); 4,804,018 shares
authorized as of December 31, 1995, 8,304,018 shares as
of December 31, 1996; 4,022,705 shares issued and
outstanding as of December 31, 1995 and 6,847,705 shares
as of December 31, 1996 (none on a pro forma basis)..... 5,549 13,850 --
Undesignated preferred stock, $.01 par value, 10,000,000
shares initially authorized as of February 19, 1997;
none issued and outstanding............................. -- -- --
Common stock, no par value; 2,268,560 shares authorized as
of December 31, 1995 and 4,253,550 shares as of December
31, 1996; 85,593 shares issued and outstanding as of
December 31, 1995 and December 31, 1996 (none on a pro
forma basis)............................................ 58 216 --
Common stock, $.01 par value; 9,924,950 shares authorized
as of February 19, 1997; 2,551,690 shares issued and
outstanding............................................. -- -- 26
Additional paid-in capital................................ -- -- 18,632
Accumulated deficit....................................... (7,807) (12,951) (12,090)
Foreign currency translation adjustment................... 503 121 121
--------- --------- --------
Total stockholders' equity (deficit).................... (1,697) 1,236 6,689
--------- --------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $ 36,329 $ 69,266 $ 69,266
--------- --------- --------
--------- --------- --------
</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, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues....................................................................... $ 47,092 $ 55,839 $ 65,099
Cost of sales.................................................................. 36,407 43,463 49,392
--------- --------- ---------
Gross profit............................................................... 10,685 12,376 15,707
--------- --------- ---------
Operating expenses
Selling, general and administrative expenses................................. 7,716 9,426 10,904
Amortization of intangible assets............................................ 1,209 1,115 709
Gain on litigation settlement, net........................................... -- -- (157)
--------- --------- ---------
Total operating expenses................................................... 8,925 10,541 11,456
--------- --------- ---------
Income from operations......................................................... 1,760 1,835 4,251
Other expenses (income)
Interest expense
Unaffiliated lenders....................................................... 2,947 2,628 2,807
Related parties............................................................ 297 1,193 1,441
Other expenses (income)...................................................... 324 297 (85)
Minority interests........................................................... 8 85 193
--------- --------- ---------
Loss before provision for income taxes and extraordinary item.................. (1,816) (2,368) (105)
Provision for income taxes..................................................... (613) (1,078) (712)
--------- --------- ---------
Loss before extraordinary item................................................. (2,429) (3,446) (817)
Extraordinary loss from debt refinancing....................................... (264) -- --
--------- --------- ---------
Net loss....................................................................... (2,693) (3,446) (817)
Adjustment to redemption value of mandatorily redeemable common stock
warrants..................................................................... 189 696 (4,320)
Cumulative convertible preferred stock dividends............................... (387) (557) (1,220)
--------- --------- ---------
Net loss applicable to common stockholders..................................... $ (2,891) $ (3,307) $ (6,357)
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per common share (Unaudited)................................ $ (.31)
---------
---------
Pro forma weighted average number of common shares outstanding (Unaudited)..... 2,659
---------
---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE COMMON STOCK FOREIGN
CONVERTIBLE ------------------------ CURRENCY
PREFERRED NUMBER OF ACCUMULATED TRANSLATION
STOCK SHARES AMOUNT DEFICIT ADJUSTMENT TOTAL
----------- ----------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993........................ $ -- 83,324 $ 57 $ (2,520) $ (155) $ (2,618)
Reclassification of mandatorily redeemable
cumulative convertible preferred stock.......... 5,168 -- -- -- -- 5,168
Net loss.......................................... -- -- -- (2,693) -- (2,693)
Adjustment to redemption value of mandatorily
redeemable common stock warrants................ -- -- -- 189 -- 189
Issuance of cumulative convertible preferred
stock, net...................................... 381 -- -- -- -- 381
Mandatorily redeemable common stock warrants
issued pursuant to anti-dilution provisions..... -- -- -- (33) -- (33)
Stock option exercised............................ -- 2,269 1 -- -- 1
Translation adjustment............................ -- -- -- -- 371 371
----------- ----------- ----- ------------- ------ ---------
Balance, December 31, 1994........................ 5,549 85,593 58 (5,057) 216 766
Net loss.......................................... -- -- -- (3,446) -- (3,446)
Adjustment to redemption value of mandatorily
redeemable common stock warrants................ -- -- -- 696 -- 696
Translation adjustment............................ -- -- -- -- 287 287
----------- ----------- ----- ------------- ------ ---------
Balance, December 31, 1995........................ 5,549 85,593 58 (7,807) 503 (1,697)
Net loss.......................................... -- -- -- (817) -- (817)
Adjustment to 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
Translation adjustment............................ -- -- -- -- (382) (382)
----------- ----------- ----- ------------- ------ ---------
Balance, December 31, 1996........................ $ 13,850 85,593 $ 216 $ (12,951) $ 121 $ 1,236
----------- ----------- ----- ------------- ------ ---------
----------- ----------- ----- ------------- ------ ---------
</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 CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss..................................................................................... $ (2,693) $ (3,446) $ (817)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities
Depreciation and amortization.............................................................. 3,868 4,244 4,012
Amortization of debt discount.............................................................. 121 298 331
Deferred income taxes...................................................................... 521 867 88
Minority interests in earnings of subsidiaries............................................. 8 85 193
Extraordinary loss from debt refinancing................................................... 264 -- --
Gain on sale of equipment.................................................................. (37) (15) (5)
Changes in assets and liabilities
Accounts receivable...................................................................... (1,549) 2,256 (3,069)
Inventories.............................................................................. (1,381) (2,962) (2,665)
Prepaid expenses and other assets........................................................ 390 274 (3)
Accounts payable......................................................................... (973) (1,004) 1,891
Accrued expenses......................................................................... (920) 682 2,477
Income taxes payable..................................................................... 59 178 525
--------- --------- ---------
Net cash provided by (used for) operating activities................................. (2,322) 1,457 2,958
--------- --------- ---------
Cash flows from investing activities
Purchase of net assets of Aerospace Display Systems.......................................... -- -- (11,693)
Purchase of minority stockholder's interest.................................................. -- -- (5,207)
Purchase of manufacturing facility........................................................... -- -- (4,369)
Purchase of net assets and stock of Elsinore Engineering Services and Elsinore Aerospace
Services, Inc.............................................................................. -- -- (1,300)
Capital expenditures......................................................................... (1,016) (1,203) (1,452)
Other, net................................................................................... 23 (259) 5
--------- --------- ---------
Net cash used for investing activities............................................... (993) (1,462) (24,016)
--------- --------- ---------
Cash flows from financing activities
Financing of acquisitions
Proceeds from issuance of cumulative convertible preferred stock and mandatorily redeemable
common stock warrants, net................................................................ -- -- 8,805
Revolving line of credit borrowings........................................................ -- -- 6,399
Senior term loan borrowings................................................................ -- -- 5,000
Convertible subordinated note borrowings from related parties.............................. -- -- 3,000
Senior and senior subordinated term loan borrowings (including amounts allocated to
mandatorily redeemable common stock warrants).............................................. 23,000 -- --
Senior, senior subordinated and related party debt repaid.................................... (19,769) -- --
Net borrowings under revolving line of credit agreements..................................... 3,167 1,972 1,191
Principal payments on capitalized lease and other long-term obligations...................... (1,024) (1,665) (2,001)
Proceeds from issuance of cumulative convertible preferred stock, net........................ 381 -- 112
Payment of deferred financing costs.......................................................... (2,670) -- (851)
Other, net................................................................................... (57) (266) (604)
--------- --------- ---------
Net cash provided by financing activities............................................ 3,028 41 21,051
--------- --------- ---------
Effect of foreign currency translation on cash................................................. 82 33 22
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........................................... (205) 69 15
Cash and cash equivalents at beginning of period............................................... 441 236 305
--------- --------- ---------
Cash and cash equivalents at end of period..................................................... $ 236 $ 305 $ 320
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
DeCrane Aircraft Holdings, Inc. and subsidiaries (the "Company") is a
manufacturer of avionics components and a provider of avionics systems
integration services in certain niche markets of the commercial aircraft
industry.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
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 on the consolidated balance
sheets, 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.
RECAPITALIZATION
In January and March 1997, the holders of certain securities agreed to a
plan for the recapitalization of the Company (the "Recapitalization").
Completion of the Recapitalization is a condition to the consummation of the
anticipated initial public offering (the "Offering") and, except for the reverse
stock split described below, would be effective concurrent therewith.
The Recapitalization provides 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 Series B 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; (iv) the cancellation of 95,368 Redeemable Warrants; and (v) a
3.53-for-1 reverse stock split (effective March 25, 1997). All common share
information set forth in the consolidated financial statements and notes thereto
has been restated to reflect the reverse stock split.
Redeemable Warrants exercisable into 208,968 common shares would remain
after the Recapitalization. Of this amount, 138,075 Redeemable Warrants would be
cancelled upon the consummation of the Offering and repayment of the Company's
senior subordinated debt and convertible notes in accordance with the terms of
the respective warrant agreements.
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.
INVENTORIES
Inventories are stated at the lower of cost or market, as determined under
the first-in, first-out ("FIFO") method. Costs include materials, labor and
manufacturing overhead.
F-7
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives, ranging from two to
twenty years. 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
cost of improvements are capitalized. Upon retirement or disposal, the cost and
accumulated depreciation of property and equipment are reduced and any gain or
loss is recorded in income or expense.
OTHER ASSETS
Goodwill is amortized on a straight-line basis over periods ranging from 15
to 30 years. The covenants not to compete are amortized on a straight-line basis
over five years. Other intangibles are amortized on a straight-line basis over
their estimated useful lives, ranging from ten to twenty years. Revolving credit
agreement deferred financing costs are amortized on a straight-line basis over
the term of the agreement. Term debt deferred financing costs are amortized
using the interest method over the terms of their respective agreements.
The Company periodically evaluates goodwill to assess recoverability based
upon expectations of future non-discounted operating cash flows related to the
acquired businesses. Based upon the most recent analysis, the Company believes
that no impairment of goodwill existed at December 31, 1995 or December 31,
1996.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires the Company to review long-lived assets and certain intangible
assets for impairment when events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. In the event the sum of the
expected undiscounted future cash flows resulting from the use of the asset is
less than the carrying amount of the asset, an impairment loss equal to the
excess of the asset's carrying value over its fair value is recorded. SFAS 121
also requires that long-lived assets and certain intangible assets to be
disposed of be recorded at the lower of carrying value or fair value less
disposal costs.
SFAS 121 is effective for financial statements issued for fiscal years
beginning after December 15, 1995, and must be adopted on a prospective basis.
The Company adopted SFAS 121 prospectively in the first quarter of 1996, the
adoption of which had no impact on the consolidated financial statements.
DERIVATIVES
The premium paid for an interest rate cap agreement is amortized to interest
expense using the interest method of amortization over the term of the cap
assurance period. The unamortized premium is classified as other current and
long-term assets in the consolidated financial statements. Amounts receivable
under the cap agreement are accrued as a reduction of interest expense.
Market value gains and losses on forward foreign exchange contracts are
recognized in the consolidated statements of operations.
F-8
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are determined using the liability method. A deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in the asset and/or liability for
deferred taxes.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's U.K. and Swiss subsidiaries have
been translated into U.S. dollars from their functional currencies, pounds
sterling and Swiss francs, respectively, in the consolidated financial
statements. Assets and liabilities have been translated at the exchange rate on
the balance sheet date and income statement amounts have been translated at
average exchange rates in effect during the period. The net translation
adjustment is reflected as a component of stockholders' equity (deficit).
Realized foreign currency exchange gains (losses) included in other expenses
(income) in the consolidated statements of operations were $(361,000),
$(314,000) and $71,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
STOCK OPTION PLAN
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 establishes a "fair value" method of
accounting for the value of grants under stock based compensation plans. As
permitted under SFAS 123, the Company will elect to continue to measure
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 ("APB Opinion No. 25"). However,
beginning in 1996, the Company has included in the notes to its consolidated
financial statements the pro forma effect on its results of operations as if the
fair value method of measuring compensation expense related to the employee
stock option plan was utilized as described in SFAS 123.
REVENUE RECOGNITION
Revenues from the sale of manufactured products, except for products
manufactured under long-term contracts, are recorded when products are shipped.
Revenues on long-term contracts are recognized using the
percentage-of-completion method based on costs incurred to date compared with
total estimated costs at completion. Unbilled accounts receivable were $81,000
and $465,000 at December 31, 1995 and 1996, respectively. Unbilled accounts
receivable are expected to be billed during the succeeding twelve month period.
PRO FORMA LOSS PER COMMON SHARE (UNAUDITED)
The Company's historical capital structure is not indicative of its
prospective structure due to the Recapitalization that will occur concurrent
with the closing of the Offering. Accordingly, historical loss per common share
is not considered meaningful and has not been presented herein.
F-9
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma loss per common share reflects the Recapitalization and is
computed using the weighted average number of common shares assumed to have been
outstanding during the periods. The dilutive effect of common equivalent shares,
other than for certain stock options granted in 1996 and Redeemable Warrants and
preferred stock sold in 1996, has not been included because their inclusion
would have decreased the loss per share. Shares issuable for options granted in
1996 and Redeemable Warrants and preferred stock sold in 1996 at prices less
than the anticipated initial public offering price have been included for all
periods presented using the treasury stock method.
The weighted average number of shares assumes that Redeemable Warrants and
preferred stock which will be converted into common stock pursuant to the
Recapitalization had been converted and thus outstanding since the dates of
issuance. As a result, pro forma loss per common share is computed using the
reported net loss of the Company before deductions for the adjustment in
redemption value of Redeemable Warrants and preferred stock dividends.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities ("SFAS 125"). SFAS 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. The new standard provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
The Company does not expect that the adoption of SFAS 125 will have a material
effect on the consolidated financial statements.
NOTE 2--ACQUISITIONS
MINORITY STOCKHOLDER'S 25% INTEREST
On February 20, 1996, the Company purchased the remaining 25% of a
subsidiary's stock it did not already own from the subsidiary's minority
stockholder (the "Minority Stockholder") for a total purchase price of
$5,748,000, including $334,000 of acquisition related costs and expenses (the
"Minority Interest Acquisition"). The purchase price consisted of $4,873,000
paid in cash at closing and a $600,000 non-interest bearing obligation payable
to the Minority Stockholder (Note 10). The cash portion of the purchase price
was funded with the proceeds from the sale of Series D preferred stock and
Redeemable Warrants (Notes 14 and 15).
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 (Note 6).
F-10
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
The consolidated results of operations for the year ended December 31, 1996
include 100% of the operating results of the subsidiary subsequent to February
20, 1996. For the periods prior to February 20, 1996, the consolidated results
of operations include a charge for the Minority Stockholder's 25% ownership
interest.
For the periods prior to February 20, 1996, the Minority Stockholder, who is
also President of the subsidiary, was compensated pursuant to an employment
agreement. Compensation was the greater of $130,000 per year or 25% of the
subsidiary's earnings before interest, taxes and certain expenses. Compensation
was payable on or before April 15th of each year, although the Minority
Stockholder received a bi-monthly draw amounting to $185,000 per year, plus
additional periodic payments, which were offset against the compensation
payable. The employment agreement was cancelled as of February 20, 1996. For the
years ended December 31, 1994, 1995 and 1996, the Minority Stockholder earned
compensation of $619,000, $851,000 and $22,000, respectively. Accrued
compensation payable of $652,000 as of December 31, 1995 was paid to the
Minority Stockholder on February 20, 1996.
AEROSPACE DISPLAY SYSTEMS
On September 18, 1996, the Company purchased substantially all of the
assets, subject to certain liabilities assumed, of the Aerospace Display Systems
division ("ADS") of Allard Industries, Inc. ("Allard"). The total purchase price
was $13,395,000, including $402,000 in acquisition related costs. ADS develops
and manufactures dichroic liquid crystal displays and modules for commercial and
military avionics systems.
The acquisition was funded with the proceeds from the sale of Series E
preferred stock, convertible subordinated notes and Redeemable Warrants (Notes
8, 14 and 15), borrowings under the Company's revolving line of credit and a
$2,000,000 non-interest bearing obligation payable to certain Allard
stockholders (Note 10).
The acquisition was accounted for as a purchase and the $7,691,000
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 (Note 6).
The consolidated results of operations for the year ended December 31, 1996
include the operating results of ADS subsequent to September 18, 1996.
ELSINORE
On December 5, 1996, the Company acquired Elsinore Aerospace Services, Inc.
and the Elsinore Engineering Services Division (collectively, "Elsinore") of
Elsinore, L.P. Elsinore provides engineering services to the commercial aircraft
industry. The total purchase price was $2,550,000, 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 provides 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 (Note 7).
F-11
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
PRO FORMA RESULTS OF OPERATIONS FOR ACQUISITIONS
Unaudited pro forma consolidated results of operations, assuming the
Minority Interest and ADS acquisitions had been consummated on January 1 of each
of the respective years, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Revenues............................................................... $ 65,791 $ 72,805
Net loss............................................................... (3,225) (473)
Net loss applicable to common stockholders............................. (3,086) (6,013)
</TABLE>
The above information reflects adjustments for depreciation, amortization,
minority interest and interest expense based on the new cost basis and debt
structure of the Company. The pro forma effect of the Elsinore acquisition is
not material and, accordingly, is not reflected in the above information. In
addition, pro forma per share information is not considered meaningful and has
not been presented above due to the Recapitalization that will occur concurrent
with the closing of the Offering.
NOTE 3--ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS
ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of $259,000
and $379,000 at December 31, 1995 and 1996, 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 aircraft industry. Generally, the Company does not require collateral
or other security to support accounts receivable subject to credit risk. Under
certain circumstances, deposits or cash on delivery terms are required. The
Company maintains reserves for potential credit losses and generally, such
losses have been within management's expectations.
SIGNIFICANT CUSTOMERS
Two customers each accounted for more than 10% of the Company's consolidated
revenues, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Customer A............................................................. 11.9% 8.9% 15.8%
Customer B............................................................. 13.7% 25.4% 7.7%
--- --- ---
Total................................................................ 25.6% 34.3% 23.5%
--- --- ---
--- --- ---
</TABLE>
Complete loss of either customer could have a significant adverse impact on
the results of operations expected in future periods. The Company anticipates
that sales to Customer B may further decrease subsequent to December 31, 1996.
However, the Company believes the decrease may be offset by sales to other
customers.
F-12
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INVENTORIES
Inventories are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Raw material........................................................... $ 7,857 $ 12,350
Work-in process........................................................ 1,732 2,717
Finished goods......................................................... 4,527 4,506
--------- ---------
Total inventories.................................................... $ 14,116 $ 19,573
--------- ---------
--------- ---------
</TABLE>
Included above are costs relating to long-term contracts recognized on the
percentage of completion method of $1,927,000 and $1,378,000 at December 31,
1995 and 1996, respectively. At December 31, 1995, costs incurred included
$1,457,000 pertaining to a contract which was partially terminated and settled.
The settlement was received in March 1996 with no resulting loss.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment includes the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Machinery and equipment................................................ $ 11,634 $ 16,637
Tooling................................................................ 2,557 2,944
Computer equipment, furniture and fixtures............................. 1,639 2,462
Leasehold improvements................................................. 1,057 1,676
--------- ---------
Total cost........................................................... 16,887 23,719
Accumulated depreciation and amortization............................ (9,500) (11,532)
--------- ---------
Net property and equipment......................................... $ 7,387 $ 12,187
--------- ---------
--------- ---------
</TABLE>
On December 12, 1996, the Company purchased all of the manufacturing assets
and inventory relating to the cold-heading manufacturing facility of the
Qualitronix Division of AMP, Inc. (the "AMP Facility"). The purchase price of
$6,802,000 (including $2,433,000 of inventory purchased) consisted of $5,399,000
paid in cash at closing with the balance paid in January 1997. The $2,205,000
difference between the purchase price and the fair value of the individual
assets acquired was recorded as an intangible asset and is being amortized over
15 years (Note 6).
Property and equipment under capital leases included above consists of the
following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Machinery and equipment.................................................... $ 864 $ 920
Computer equipment, furniture and fixtures................................. -- 306
--------- ---------
Total cost............................................................... 864 1,226
Accumulated depreciation................................................. (237) (347)
--------- ---------
Net property and equipment............................................. $ 627 $ 879
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation of machinery and equipment under capital leases is included in
cost of sales in the consolidated financial statements.
NOTE 6--OTHER ASSETS
Other assets includes the following and is net of accumulated amortization
for the respective periods as parenthetically noted (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Goodwill (net of $445 and $808)......................................... $ 2,140 $ 19,756
Deferred financing costs (net of $708 and $1,368) (Notes 10 and 21)..... 1,926 2,296
Covenants not to compete (net of $2,350 in 1995)........................ 442 --
Other intangibles (net of $173 and $164)................................ 322 274
Other assets............................................................ 537 863
--------- ---------
Other assets, net..................................................... $ 5,367 $ 23,189
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1995, fully amortized covenants not to compete and
goodwill aggregating $2,600,000 were eliminated against the related accumulated
amortization. As of June 25, 1996, the remaining net unamortized balance of
covenants not to compete aggregating $163,000 ($2,792,000 cost and $2,629,000
accumulated amortization) were written off pursuant to the litigation settlement
with the former owner of acquired businesses (Note 17). As of December 31, 1996,
goodwill included $17,979,000, resulting from the Minority Interest Acquisition,
the ADS and Elsinore acquisitions and the intangible asset resulting from the
purchase of the AMP Facility manufacturing assets.
NOTE 7--SHORT-TERM BORROWINGS
Short-term borrowings outstanding as of December 31, 1995 and 1996 includes
the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Promissory note, 15% interest and principal payable as described below......................... $ -- $ 1,250
Short-term revolving line of credit............................................................ 911 724
--------- ---------
Total short-term borrowings................................................................ $ 911 $ 1,974
--------- ---------
--------- ---------
</TABLE>
The promissory note was issued on December 5, 1996 in conjunction with the
Elsinore acquisition and is payable to the former owners. The promissory note,
plus accrued interest, is payable on or before February 17, 1997. The purchase
agreement provides for a reduction of the principal balance of the promissory
note should the amount of working capital as of the closing date be less than a
defined amount.
The Company and the former owners of Elsinore disagree on the amount of
working capital as of the closing date. On February 14, 1997, the former owners
were paid $956,000 which reflects the Company's determination of the working
capital adjustment. The Company and the former owners of
F-14
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SHORT-TERM BORROWINGS (CONTINUED)
Elsinore are attempting to resolve the difference. If the difference is not
resolved, the purchase agreement provides for arbitration of the dispute.
Management believes the ultimate resolution will not have a material adverse
effect on the Company's consolidated financial position, results of operations
or cash flows.
The Company's Swiss subsidiary has a short-term revolving line of credit
with a Swiss bank under which borrowings of $911,000 and $724,000 were
outstanding at December 31, 1995 and 1996, respectively. Interest on the line
accrues at the bank's prime rate (5.25% at December 31, 1996) plus 0.25%. The
line of credit is guaranteed by the Company.
NOTE 8--CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES
Convertible subordinated notes payable (the "Convertible Notes") are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Convertible Notes, 15% interest and principal payable as described
below.................................................................. $ -- $ 3,000
Unamortized original issue discount...................................... -- (78)
--------- ---------
Convertible Notes, net................................................. $ -- $ 2,922
--------- ---------
--------- ---------
</TABLE>
In conjunction with the ADS acquisition, the Company sold Convertible Notes
and Redeemable Warrants to a group of investors, who are also related parties
(Note 21). As described in Note 14, $124,000 of the aggregate $3,000,000
proceeds was allocated to Redeemable Warrants in the consolidated financial
statements. The corresponding reduction in the recorded principal amount of the
notes is treated as debt discount and is being amortized as interest expense
over the life of the notes resulting in a 20.5% effective interest rate.
The Convertible Notes mature on the earlier of June 30, 1997 or the
occurrence of an initial public offering ("IPO"), as defined. If an IPO does not
occur by June 30, 1997, the $3,000,000 outstanding principal balance will
convert into 750,000 shares of Series E preferred stock at a $4.00 per share
conversion price.
Interest is payable quarterly commencing December 31, 1996. On each
quarterly interest payment date, the Company may elect to either pay the
interest in cash or defer the interest payment until the principal portion of
the Convertible Notes is due and payable (the "Deferred Interest"). The Deferred
Interest is added to the principal balance of the Convertible Notes for the
purpose of computing the interest payable for subsequent quarters. The Company's
senior debt agreements, as described in Note 10, prohibit the Company from
making interest payments in cash until the senior debt is repaid in full.
Deferred Interest aggregates $129,000 as of December 31, 1996 and is included in
accrued expenses.
When the Deferred Interest is payable, each note holder may elect to receive
the amount payable in either cash, in Series E preferred stock at a $4.00 per
share conversion price if an IPO has not occurred or if an IPO has occured in
shares of common stock, the number of which is calculated using the per share
price at which such shares were offered in the IPO.
F-15
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--CONVERTIBLE SUBORDINATED NOTES PAYABLE TO RELATED PARTIES (CONTINUED)
The Convertible Notes are subordinate in right of payment to the senior and
senior subordinated obligations described in Note 10, pari passu with the
acquisition financing payable to sellers described in Note 10 and senior to all
capital shares of the Company.
NOTE 9--ACCRUED EXPENSES
Accrued expenses are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Salaries, wages, compensated absences and payroll related taxes.......... $ 1,413 $ 2,842
Compensation payable to Minority Stockholder (Note 17)................... 652 --
Due to former owner of acquired businesses (Note 17)..................... 242 --
Interest payable to related parties (Notes 10 and 21).................... -- 129
Other accrued expenses................................................... 739 4,270
--------- ---------
Total accrued expenses................................................. $ 3,046 $ 7,241
--------- ---------
--------- ---------
</TABLE>
NOTE 10--LONG-TERM OBLIGATIONS
Long-term obligations outstanding includes the following (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
SENIOR DEBT
Senior revolving line of credit.......................................................... $ 4,304 $ 11,982
Senior term notes payable, due in quarterly installments through September 30, 2001 plus
interest............................................................................... 13,178 16,769
SENIOR SUBORDINATED DEBT PAYABLE TO RELATED PARTIES
Senior subordinated notes payable, due on December 31, 2001 plus 12% interest payable
semi-annually.......................................................................... 5,833 6,027
CAPITAL LEASE OBLIGATIONS
Interest at 6.59% to 18.08%, secured by leased equipment (Note 5)........................ 446 662
ACQUISITION FINANCING PAYABLE TO SELLERS
Payable to Allard stockholders, due in monthly installments of $56,000 through August 18,
1999................................................................................... -- 1,531
Payable to Minority Stockholder, due in monthly installments of $33,000 through December
15, 1997............................................................................... -- 383
--------- ---------
Total long-term obligations............................................................ 23,761 37,354
Less current portion payable to unaffiliated lenders................................... (1,612) (3,004)
--------- ---------
Long-term obligations, less current portion.......................................... $ 22,149 $ 34,350
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED)
1994 DEBT REFINANCING
In November 1994, the Company refinanced substantially all of its debt. A
senior revolving line of credit and senior term notes (collectively "Senior
Debt") were provided by two banks (the "Senior Lenders"). Senior subordinated
notes were provided by two institutional lenders (the "Senior Subordinated
Lenders"). Fees and expenses associated with obtaining the financing aggregated
$2,634,000 and are capitalized as deferred financing costs. As described in Note
14, $1,835,000 of the proceeds were allocated to Redeemable Warrants issued to
the lenders. Proceeds from the refinancing were used to repay existing debt
outstanding of $19,769,000, including $960,000 of notes payable to related
parties, and costs incurred in connection with the refinancing.
The Company incurred a $264,000 extraordinary loss in connection with the
debt refinancing related to the write-off of unamortized deferred financing
costs, a charge for unamortized debt discounts and a prepayment penalty.
SENIOR DEBT
The Senior Debt is secured by the Company's assets of $67,380,000 at
December 31, 1996, which excludes equipment under capital lease obligations
(Note 5) and certain accounts receivable and inventory of the Company's Swiss
subsidiary.
During 1996, the Senior Debt agreement was amended to provide a portion of
the funds for the ADS and Elsinore acquisitions and the AMP Facility purchase,
and to accommodate the Minority Interest Acquisition. Maximum borrowings
permitted under the senior revolving line of credit were increased $10,750,000
and the Company issued an additional $5,000,000 of senior term notes. In
addition, the interest rates charged on all borrowings under the Senior Debt
agreement were increased 2% effective September 18, 1996. Fees and expenses
associated with obtaining the financing and amendments aggregated $835,000 and
are capitalized as deferred financing costs. Fees and expenses includes $179,000
ascribed to the value of Redeemable Warrants issued to the Senior Lenders in
conjunction with obtaining the revolving line of credit increase (Note 14).
SENIOR REVOLVING LINE OF CREDIT
At December 31, 1996, the Company had a $15,750,000 senior revolving line of
credit, subject to a defined borrowing base, expiring on September 18, 1999. The
Company is required to pay an annual commitment fee of 0.5% on the unused
portion. At December 31, 1996, additional borrowings of $3,768,000 were
available under the agreement.
At the Company's option, borrowings under the revolving line of credit bear
interest at either the Base Rate plus 3.25% or the Eurodollar Rate plus 4.5% per
annum. The Base Rate is the higher of the Federal Funds rate plus 1.5% or the
prime rate. The Eurodollar Rate is the London Interbank Offered Rate ("LIBOR").
At December 31, 1996, the interest rate charged was 10.0% on $8,000,000 of the
borrowings outstanding and 11.5% on $3,982,000 of the borrowings outstanding.
F-17
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED)
SENIOR TERM NOTES
The senior term notes are due in quarterly installments as follows (amounts
in thousands):
<TABLE>
<S> <C>
March 31, 1997 through and including December 31, 1997............. $ 469
March 31, 1998 through and including December 31, 1998............. 874
March 31, 1999 through and including June 30, 2001................. 969
September 30, 2001................................................. 1,938
</TABLE>
At the Company's option, the senior term notes bear interest at either the
Base Rate plus 3.5% or the Eurodollar Rate plus 5.0% per annum. The Base Rate
and Eurodollar Rate are the same rates as under the senior revolving line of
credit. At December 31, 1996, the interest rate charged was 10.5% on $12,000,000
of the term notes and 11.75% on $5,000,000 of the term notes.
As described in Note 14, $442,000 of the proceeds of the senior term notes
issued in 1994 were allocated to Redeemable Warrants in the consolidated
financial statements. The corresponding reduction in the recorded principal
amounts of the notes is treated as debt discount and is being amortized as
interest expense over the life of the notes resulting in a 11.45% effective
interest rate based on the interest rates in effect at December 31, 1996.
Unamortized debt discount was $322,000 and $231,000 at December 31, 1995 and
1996, respectively.
ADMINISTRATIVE AND OTHER FEES
The Senior Lenders receive various administrative fees during the term of
the Senior Debt agreement, payable on a monthly and quarterly basis. These fees
aggregated $49,000 and $146,000 for the years ended December 31, 1995 and 1996,
respectively. Administrative fees for the two month period from the inception of
the debt agreement to December 31, 1994 were not significant.
In conjunction with one of the 1996 amendments, the Company agreed to pay
additional semi-annual fees on May 15 and November 15 each year commencing May
15, 1997 and continuing until the Company receives a firm commitment for an
underwritten public offering with at least $20,000,000 of net cash proceeds to
the Company. The semi-annual fee payable on May 15, 1997 is $67,000 and each
succeeding such semi-annual fee payment increases by $67,000 over the previous
payment amount.
The Senior Lenders will receive a $250,000 success fee upon consummation of
the Offering.
SENIOR SUBORDINATED NOTES PAYABLE TO RELATED PARTIES
The Senior Subordinated Lenders, who are also related parties (Note 21),
provided the Company with unsecured senior subordinated (to Senior Debt) term
loans aggregating $7,000,000 (collectively referred to as "Senior Subordinated
Debt") in conjunction with the Company's 1994 debt refinancing.
As described in Note 14, $1,393,000 of the proceeds of the senior
subordinated notes were allocated to Redeemable Warrants in the consolidated
financial statements. The corresponding reduction in the recorded principal
amounts of the notes is treated as debt discount and is being amortized as
interest expense over the life of the notes resulting in a 14.78% effective
interest rate. Unamortized debt discount was $1,167,000 and $973,000 at December
31, 1995 and 1996, respectively.
One of the Senior Subordinated Lenders receives an advisory fee for as long
as the Senior Subordinated Debt is outstanding. During the years ended December
31, 1994, 1995, and 1996, the
F-18
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--LONG-TERM OBLIGATIONS (CONTINUED)
Company paid advisory fees of $12,000, $72,000 and $100,000, respectively.
During 1996, the Senior Subordinated Lenders received $100,000 in fees and
expenses associated with amendments to their loan agreement to accommodate the
Minority Interest Acquisition, the ADS and Elsinore acquisitions and the AMP
Facility purchase.
SENIOR AND SENIOR SUBORDINATED DEBT RESTRICTIVE COVENANTS
The Senior and Senior Subordinated Debt agreements contain certain
restrictive covenants which require the Company to maintain certain defined
financial ratios such as leverage, EBITDA, fixed charges, interest coverage,
selling, general and administrative expense, accounts payable and current
ratios, establish minimum levels of net worth, limit capital expenditures,
including capital lease obligations, and limit additional indebtedness which may
be incurred. The debt agreements also prohibit the Company from making any
dividend payments on its preferred or common stock.
At December 31, 1995, the Company was in default of the leverage, EBITDA,
fixed charges, interest coverage and net worth restrictive covenants. On
February 20, 1996, the Company received waivers of the defaults from its Senior
and Senior Subordinated Lenders. Since March 31, 1996, the Company has been in
compliance with the restrictive covenants.
ACQUISITION FINANCING PAYABLE TO SELLERS
In conjunction with the Minority Interest Acquisition and the ADS
acquisition, the sellers provided financing that is payable in monthly
installments over an eighteen-month and a three-year period, respectively. The
Minority Stockholder and ADS payment obligations are non-interest bearing;
original issue discounts of 9.75% and 11.5%, respectively, are being amortized
over the payment obligation terms. Unamortized debt discounts were $17,000 and
$247,000 as of December 31, 1996 for the Minority Stockholder and ADS payment
obligations, respectively.
AGGREGATE MATURITIES
The aggregate maturities of long-term obligations are as follows as of
December 31, 1996 (amounts in thousands):
<TABLE>
<S> <C>
Year ending December 31,
1997............................................................ $ 3,194
1998............................................................ 4,404
1999............................................................ 16,442
2000............................................................ 3,902
2001............................................................ 10,880
---------
Total aggregate maturities.................................... 38,822
Less unamortized debt discounts............................... (1,468)
---------
Total long-term obligations................................. $ 37,354
---------
---------
</TABLE>
F-19
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--INCOME TAXES
Loss before income taxes and extraordinary item was taxed under the
following jurisdictions (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Domestic................................................. $ (1,605) $ (2,534) $ (855)
Foreign.................................................. (211) 166 750
--------- --------- ------
Total.................................................. $ (1,816) $ (2,368) $ (105)
--------- --------- ------
--------- --------- ------
</TABLE>
The provisions for income taxes are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current
U.S. federal.................................................. $ 10 $ 60 $ 269
State and local............................................... 42 24 194
Foreign....................................................... 40 127 161
--------- --------- ---------
Total current............................................... 92 211 624
--------- --------- ---------
Deferred
U.S. federal.................................................. 456 751 70
State and local............................................... 137 226 21
Foreign....................................................... (72) (110) (3)
--------- --------- ---------
Total deferred.............................................. 521 867 88
--------- --------- ---------
Total provision
U.S. federal.................................................. 466 811 339
State and local............................................... 179 250 215
Foreign....................................................... (32) 17 158
--------- --------- ---------
Total provision............................................. $ 613 $ 1,078 $ 712
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-20
<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 (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross deferred tax liabilities
Tax effect on earnings of subsidiary not consolidated for
income tax purposes...................................... $ 1,454 $ 2,431 $ 2,688
Depreciable assets......................................... 1,072 781 1,347
Other...................................................... 298 367 279
--------- --------- ---------
Gross deferred tax liabilities........................... 2,824 3,579 4,314
--------- --------- ---------
Gross deferred tax (assets)
Inventory.................................................. (959) (1,376) (1,798)
Loss carryforwards......................................... (1,226) (1,391) (1,238)
Accrued expenses........................................... (145) (220) (605)
Amortizable assets......................................... -- -- (356)
Allowance for doubtful accounts............................ (39) (41) (68)
Other...................................................... (51) (122) --
--------- --------- ---------
Gross deferred tax (assets).............................. (2,420) (3,150) (4,065)
--------- --------- ---------
Deferred tax assets valuation allowance...................... 1,771 2,681 3,063
--------- --------- ---------
Net deferred tax liability................................. $ 2,175 $ 3,110 $ 3,312
--------- --------- ---------
--------- --------- ---------
</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 loss
before income taxes and extraordinary item as a result of the following
differences (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) at U.S. statutory rates...................... $ (617) $ (805) $ (36)
Increase (decrease) resulting from
Tax on earnings of subsidiary not consolidated for tax
purposes...................................................... 593 977 92
Book benefit not provided for net operating loss
carryforwards................................................. 530 773 172
Amortization of assets and other expenses not deductible for
income tax purposes........................................... 81 68 137
State income taxes, net of federal benefit...................... 27 16 157
Lower tax rates on earnings of foreign subsidiaries............. (2) (11) (65)
Other, net...................................................... 1 60 255
--------- --------- ---------
Income tax at effective rates................................. $ 613 $ 1,078 $ 712
--------- --------- ---------
--------- --------- ---------
</TABLE>
Approximately $3,385,000 and $1,425,000 of the Company's loss carryforwards
remained at December 31, 1996 for federal and state income tax purposes,
respectively. The carryforwards expire in varying amounts through 2011. No
benefit for the remaining loss carryforwards has been recognized in the
consolidated financial statements. The amount of loss carryforwards that may be
utilized in the future
F-21
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--INCOME TAXES (CONTINUED)
are subject to potential limitations upon the occurrence of a change in control
of the Company, as defined in the Internal Revenue Code. A change in control may
have occurred during 1996 as a result of certain equity transactions and/or may
occur upon the Offering.
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 interest and foreign exchange rate
risks.
INTEREST RATE RISK MANAGEMENT
In January 1995, the Company entered into an interest rate cap agreement to
reduce the potential impact of increases in interest rates on the Company's
floating-rate senior term notes. The agreement, with one of the Senior Lenders
(Note 21), provides for a three month LIBOR interest rate cap of 9.375% during
the period December 29, 1995 through December 31, 1998 and entitles the Company
to receive from the Senior Lender on a quarterly basis the amounts, if any, by
which interest payments on its senior term debt, computed using the actual three
month LIBOR rate, exceed the interest payment that would be due if the rate were
fixed at 9.375%. Unamortized premiums were $141,000 and $86,000 as of December
31, 1995 and 1996, respectively, and are classified as other current and
long-term assets in the consolidated financial statements.
FOREIGN EXCHANGE RISK MANAGEMENT
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 net loss of $316,000 for the year ended December 31,
1996 (none in prior periods). No forward exchange contracts were open as of
December 31, 1996.
In January 1997, the Company entered into twelve forward exchange contracts,
with one of its Senior Lenders, to purchase a total of CHF 7,800,000 for
$5,885,000 at rates ranging between 1.3021 and 1.3492 CHF per U.S. dollar.
Settlement of the contracts is to occur in twelve equal monthly amounts of CHF
650,000 from January 15, 1997 through December 15, 1997.
CREDIT RISK
The Company believes exposure to derivative credit losses is minimal in the
event of nonperformance by the Senior Lenders because any amounts due, but not
paid, to the Company by the Senior Lenders could be offset against the Company's
principal and interest payments to the Senior Lenders.
F-22
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes the recorded amounts of financial assets and
liabilities approximates fair values as of December 31, 1995 and 1996, except as
described below (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------- ----------------------
RECORDED FAIR RECORDED FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Financial assets
Other current and long-term assets (interest
rate cap, Note 12)........................ $ 141 $ 20 $ 86 $ 1
Financial liabilities
Long-term obligations....................... 23,761 24,176 37,354 39,491
</TABLE>
The fair value of the interest rate cap is estimated by obtaining current
quotes as of the balance sheet date for a cap agreement of similar terms. The
fair values of financial liabilities are estimated by discounting future cash
flows at rates currently available to the Company for debt with the same
remaining maturities, as advised by the Company's investment bankers.
The recorded amounts shown in the table are included in the consolidated
financial statements under the indicated captions.
F-23
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS
Mandatorily redeemable common stock warrants (the "Redeemable Warrants")
were issued in conjunction with various debt and equity transactions during the
three years ended December 31, 1996 and are summarized in the table below
(amounts in thousands):
<TABLE>
<CAPTION>
VALUE OF REDEEMABLE WARRANTS ISSUED IN CONJUNCTION WITH
-------------------------------------------------------------------------------------
SENIOR TOTAL
SENIOR DEBT SENIOR FORMER CONVERTIBLE SERIES D SERIES E REDEEM-
TERM AMEND- SUBORDINATED LENDER SUBORDINATED PREFERRED PREFERRED ABLE
NOTES MENT NOTES DEBT NOTES STOCK STOCK WARRANTS
--------- --------- ----------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.... $ -- $ -- $ -- $ 650 $ -- $ -- $ -- $ 650
Redeemable Warrants issued
pursuant to anti-dilution
provisions upon the sale of
Preferred Stock............. -- -- -- 33 -- -- -- 33
Redeemable Warrants issued in
conjunction with debt
refinancing................. 442 -- 1,393 -- -- -- -- 1,835
Adjustment to redemption
value....................... -- -- -- (189) -- -- -- (189)
--------- --------- ----------- --------- ----- --------- --------- ---------
Balance, December 31, 1994.... 442 -- 1,393 494 -- -- -- 2,329
Adjustment to redemption
value....................... (132) -- (416) (148) -- -- -- (696)
--------- --------- ----------- --------- ----- --------- --------- ---------
Balance, December 31, 1995.... 310 -- 977 346 -- -- -- 1,633
Redeemable Warrants issued in
conjunction with sale of
Convertible Notes and
Preferred Stock............. -- -- -- -- 124 492 124 740
Redeemable Warrants issued
pursuant to anti-dilution
provisions upon the sale of
Preferred Stock............. -- -- -- 7 -- -- -- 7
Redeemable Warrants issued in
conjunction with Senior Debt
agreement amendment......... -- 179 -- -- -- -- -- 179
Adjustment to redemption
value....................... 455 -- 1,434 527 319 1,266 319 4,320
--------- --------- ----------- --------- ----- --------- --------- ---------
Balance, December 31, 1996.... $ 765 $ 179 $ 2,411 $ 880 $ 443 $ 1,758 $ 443 $ 6,879
--------- --------- ----------- --------- ----- --------- --------- ---------
--------- --------- ----------- --------- ----- --------- --------- ---------
</TABLE>
F-24
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
All Redeemable Warrants are subject to adjustment for anti-dilution, have
certain demand registration rights and, in certain instances, are cancellable
upon the occurrence of certain defined events. The table below summarizes the
number of the Company's common shares subject to Redeemable Warrants, the number
of Redeemable Warrants subject to cancellation, Redeemable Warrants exercisable
and other information as of December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
REDEEMABLE WARRANTS ISSUED IN CONJUNCTION WITH
-----------------------------------------------------------------------------------------
SENIOR
SENIOR DEBT SENIOR FORMER CONVERTIBLE SERIES D SERIES E
TERM AMEND- SUBORDINATED LENDER SUBORDINATED PREFERRED PREFERRED
NOTES MENT NOTES DEBT NOTES STOCK STOCK
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total number of the Company's
common shares subject to
Redeemable Warrants at
December 31, 1994......... 84,748 -- 266,990 94,558 -- -- --
December 31, 1995......... 84,748 -- 266,990 94,558 -- -- --
December 31, 1996......... 84,748 70,893 266,990 97,426 49,079 194,618 49,079
Redeemable Warrants subject to
cancellation at
December 31, 1994......... -- -- 124,595 -- -- -- --
December 31, 1995......... -- -- 124,595 -- -- -- --
December 31, 1996......... -- -- 88,996 -- 49,079 194,618 --
Redeemable Warrants not
subject to cancellation and
exercisable at
December 31, 1994......... 84,748 -- 142,395 94,558 -- -- --
December 31, 1995......... 84,748 -- 142,395 94,558 -- -- --
December 31, 1996......... 84,748 70,893 177,994 97,426 -- -- 49,079
Other information
Exercise price per share.. $ .035 $ 14.11 $ .035 $ .0004 $ .035 $ .035 $ .035
Expiration date........... Nov. 2, Sep. 18, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2004 2006 2004 2004 2006 2003 2006
<CAPTION>
TOTAL
REDEEM-
ABLE
WARRANTS
-----------
<S> <C>
Total number of the Company's
common shares subject to
Redeemable Warrants at
December 31, 1994......... 446,296
December 31, 1995......... 446,296
December 31, 1996......... 812,833
Redeemable Warrants subject to
cancellation at
December 31, 1994......... 124,595
December 31, 1995......... 124,595
December 31, 1996......... 332,693
Redeemable Warrants not
subject to cancellation and
exercisable at
December 31, 1994......... 321,701
December 31, 1995......... 321,701
December 31, 1996......... 480,140
Other information
Exercise price per share..
Expiration date...........
</TABLE>
The warrant holders have the right ("Put Option"), 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, shall be equal
to the greater of either fair market value, book value, or a value based upon a
defined formula which includes, in part, an earnings multiple. During the years
ended December 31, 1994, 1995 and 1996, the Company increased (decreased) by
$(189,000), $(696,000) and $4,320,000, respectively, the amount ascribed to the
Redeemable Warrants to reflect estimated redemption value. The increase
(decrease) was charged (credited) to stockholders' accumulated deficit.
Each warrants' terms and provisions and related Put Options are described
below.
SENIOR TERM NOTE WARRANTS
DESCRIPTION OF REDEEMABLE WARRANTS
All of the Senior Term Note warrants are held by the Senior Lenders. All of
the warrants issued and outstanding are exercisable as of December 31, 1996 and
are not subject to cancellation. The warrant holders are entitled to receive any
common stock dividends, when and if declared, which would have
F-25
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
been paid upon the exercise in full of the warrants immediately prior to the
record date for such dividend. The warrants do not have voting rights.
PUT OPTION
The Senior Lenders have the right, if certain "Senior Term Note Put Events",
as defined below, occur prior to November 2, 1999, to require the Company to
redeem all (but not less than all) of the warrants or the stock issued upon
exercise of the warrants. After November 2, 1999, the Senior Lenders have the
unrestricted right to require the Company to redeem all (but not less than all),
of the warrants or the shares issued upon exercise of the warrants.
DEFINITIONS
The following terms are defined in the warrant agreements:
SENIOR TERM NOTE PUT EVENTS--Defined as the occurrence of any of the
following: (i) a defined change in control of the Company; (ii) certain
consolidations or mergers or the sale of substantially all of the assets of the
Company; (iii) repayment in full of all Senior Debt; or (iv) the filing of a
registration statement which relates to a "Qualified Public Offering."
QUALIFIED PUBLIC OFFERING--Defined as a public offering of common stock with
net proceeds of at least $25,000,000 and valuing the total common stock equity
of the Company at $55,000,000 or more at closing.
SENIOR DEBT AMENDMENT WARRANTS
DESCRIPTION OF REDEEMABLE WARRANTS
All of the Senior Debt Amendment warrants are held by the Senior Lenders.
All of the warrants issued and outstanding are exercisable as of December 31,
1996 and, under certain circumstances, the number issued may be reduced. The
warrant holders are entitled to receive any common stock dividends, when and if
declared, which would have been paid upon the exercise in full of the warrants
immediately prior to the record date for such dividend. The warrants do not have
voting rights.
PUT OPTION
The Senior Lenders have the right, if certain put events occur prior to
September 18, 2001, to require the Company to redeem all (but not less than all)
of the warrants or the stock issued upon exercise of the warrants. The put
events are the same as the Senior Term Note Put Events described above. After
September 18, 2001, the Senior Lenders have the unrestricted right to require
the Company to redeem all (but not less than all) of the warrants or the stock
issued upon exercise of the warrants.
The Senior Lenders' Put Option terminates upon the occurrence of a Qualified
Public Offering as described above.
F-26
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
SENIOR SUBORDINATED NOTE WARRANTS
DESCRIPTION OF REDEEMABLE WARRANTS
All of the Senior Subordinated Note warrants are held by the Senior
Subordinated Lenders and were issued in several series. The following table
summarizes the warrants issued and outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES
SUBJECT TO DATE WARRANTS
WARRANTS BECOME EXERCISABLE
----------- -----------------------
<S> <C> <C>
Series of Redeemable Warrants
Series 1.............................................. 142,395 November 2, 1994
Series 2.............................................. 35,599 December 31, 1996
Series 3.............................................. 35,599 December 31, 1997
Series 4.............................................. 53,397 December 31, 1998
-----------
Total issued and outstanding........................ 266,990
-----------
-----------
</TABLE>
The Series 3 and Series 4 Redeemable Warrants are cancellable if certain
"Triggering Events", as defined below, occur prior to the warrants becoming
exercisable. The Series 1 and Series 2 Redeemable Warrants to purchase an
aggregate 177,994 common shares are not cancellable and are exercisable at
December 31, 1996.
The warrant holders are not entitled to receive any common stock cash
dividends. When and if cash dividends are declared, the number of common shares
subject to warrants and the per share exercise price is subject to adjustment.
The warrants have voting rights unless cancelled in accordance with the terms of
the warrant agreements.
PUT OPTION
Until December 31, 2000, the Senior Subordinated Lenders have the right, if
a Triggering Event occurs and if the warrants are then exercisable, to require
the Company to redeem all (or any portion) of the warrants issued and
outstanding. If a Triggering Event does not occur, the Senior Subordinated
Lenders have the right, only if the Senior Lenders elect (and are able) to
exercise their respective Put Options, to require the Company to redeem all (or
any portion) of their warrants as are issued and outstanding. After December 31,
2000, the Senior Subordinated Lenders have the unrestricted right to require the
Company to redeem all (or any portion) of the warrants issued and outstanding.
DEFINITIONS
The following terms are defined in the warrant agreements:
TRIGGERING EVENTS--Defined as payment in full of the Senior Subordinated
Debt and either of the following: (i) the sale of all or substantially all of
the Company's assets or stock for cash in an amount equivalent to a common
stockholder equity valuation of $30,000,000 or more; or (ii) an "Initial Public
Offering."
F-27
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
INITIAL PUBLIC OFFERING--Defined as a public offering of common stock with
net proceeds of at least $25,000,000 and valuing the total common stock equity
of the Company at $55,000,000 or more at closing.
FORMER LENDER DEBT WARRANTS
DESCRIPTION OF REDEEMABLE WARRANTS
In 1991, warrants were issued to a former senior subordinated lender (the
"Former Lender") to purchase 18% of a subsidiary's common stock. The warrants
were exchangeable at the option of the Former Lender for warrants to purchase
that number of the Company's common shares which have an equivalent fair market
value on the exchange date to the number of the subsidiary's common shares
subject to the original warrants (subject to adjustment for anti-dilution). The
warrants were recorded at $380,000, the estimated fair market value on the date
of issuance.
On November 2, 1994, the Former Lender exchanged its warrants for Redeemable
Warrants to purchase 88,339 shares of the Company's common stock. In conjunction
with the sales of Preferred Stock during 1994 and 1996 discussed in Note 15, the
Former Lender was issued an additional 6,219 and 2,868 Redeemable Warrants,
respectively, pursuant to the warrant agreement anti-dilution provisions.
The Redeemable Warrants were exercisable as of their respective issuance
dates and are not subject to cancellation. The Former Lender is entitled to
receive common stock dividends, if declared, except such dividends are payable
only upon exercise of the warrants and only with respect to number of shares
exercised. The warrants do not have voting rights.
PUT OPTION
Until December 30, 2000, the Former Lender has the right, only if the Senior
or Senior Subordinated Lenders or Series D Investors elect (and are able) to
exercise their respective Put Options or if a Qualified Public Offering (as
defined in the Senior Lenders' warrant agreements) has occurred, to require the
Company to redeem all (or any portion) of the warrants or the shares issued upon
exercise of the warrants. On December 31, 2000 and thereafter, the Former Lender
has the unrestricted right to require the Company to redeem all (or any portion)
of the warrants or the shares issued upon exercise of the warrants issued and
outstanding.
CONVERTIBLE SUBORDINATED NOTE WARRANTS
DESCRIPTION OF REDEEMABLE WARRANTS
The Convertible Subordinated Note warrants to purchase 49,079 common shares
are held by the Series D Investors and one of the Senior Subordinated Lenders
(67% and 33%, respectively, and collectively referred to as Convertible Note
Warrant Holders). The warrants were issued on September 18, 1996 in conjunction
with the Company's sale of Convertible Notes and become exercisable on June 30,
1997 provided a "Convertible Notes IPO" (as defined below) shall not have
occurred or the Convertible Notes shall not have been repaid in full. None were
exercisable as of December 31, 1996. The warrants are cancelled upon repayment
of the Convertible Notes with the proceeds from a "Registered Public Offering"
(as defined below) or expire on December 31, 2006. The Convertible Note Warrant
F-28
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
Holders are not entitled to receive any common stock cash dividends. When and if
cash dividends are declared, the number of common shares subject to warrants and
the per share exercise price is subject to adjustment. The warrants have voting
rights unless cancelled in accordance with the terms of the warrant agreements.
The warrant agreements provide for an increase in the number of common
shares subject to the warrants if certain "Private Financing" (as defined below)
or Registered Public Offering transactions occur after June 30, 1997 but prior
to the exercise date. The amount of the increase is a formula determined value
based on the per share price of the financing transactions. No increase in the
number of common shares is required provided the financing transactions result
in a price in excess of $14.32 per share.
PUT OPTION
Until December 31, 2000, the Convertible Note Warrant Holders have the
right, if a Registered Public Offering occurs and if the warrants are then
exercisable, to require the Company to redeem all (or any portion) of the
warrants issued and outstanding. If a Registered Public Offering does not occur,
the warrant holders have the right, only if the Senior Lenders elect (and are
able) to exercise their respective Put Options, to require the Company to redeem
all (or any portion) of their warrants as are issued and outstanding. After
December 31, 2000, warrant holders have the unrestricted right to require the
Company to redeem all (or any portion) of the warrants issued and outstanding.
DEFINITIONS
The following terms are defined in the warrant agreements:
CONVERTIBLE NOTES IPO--Defined as receipt by the Company from an
underwriter, on or prior to June 30, 1997, of a firm commitment to underwrite a
public offering for shares of the Company's common stock, which underwritten
public offering shall close on or before July 11, 1997.
PRIVATE FINANCING--Defined as any disposition by the Company or any selling
stockholder of any equity security or convertible security of the Company other
than pursuant to a Registered Public Offering.
REGISTERED PUBLIC OFFERING--Defined as the closing of an underwritten public
offering for the common stock of the Company.
SERIES D PREFERRED STOCK WARRANTS
DESCRIPTION OF REDEEMABLE WARRANTS
All of the Series D preferred stock warrants are held by the Series D
Investors. The warrants were issued in several series on February 20, 1996 in
conjunction with the Company's sale of Series D
F-29
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
preferred shares. The following table summarizes the warrants issued and
outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES
SUBJECT TO DATE WARRANTS
WARRANTS BECOME EXERCISABLE
----------- -----------------------
<S> <C> <C>
Series of Redeemable Warrants
Series 1.............................................. 55,605 December 31, 1997
Series 2.............................................. 55,605 December 31, 1998
Series 3.............................................. 83,408 December 31, 1999
-----------
Total issued and outstanding........................ 194,618
-----------
-----------
</TABLE>
All series of Redeemable Warrants are cancellable if certain "Triggering
Events", as defined below, occur prior to the warrants becoming exercisable. In
addition, a portion of the Series 1 warrants are cancellable if one or more
"Registered Public Offerings", as defined below, occurs prior to December 31,
1997 as summarized in the table below.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES
SUBJECT TO WARRANTS
-------------------------
CANCELLABLE REMAINING
------------ -----------
<S> <C> <C>
Provided that before December 31, 1997 no Triggering Events occur and:
No Registered Public Offerings occur................................................. -- 55,605
A Registered Public Offering occurs with a fully diluted common stock equity value of
(amounts subject to adjustment in certain circumstances)
Greater than or equal to $60,000,000 but less than $65,000,000................... 13,901 41,704
Greater than or equal to $65,000,000 but less than $70,000,000................... 27,802 27,803
Greater than or equal to $70,000,000............................................. 41,704 13,901
</TABLE>
The number of common shares subject to warrants is subject to further
reduction when, and if, any portion of the Senior Subordinated Note warrants is
cancelled pursuant to the terms of those warrant agreements. The warrant holders
are not entitled to receive any common stock cash dividends. When and if cash
dividends are declared, the number of common shares subject to warrants and the
per share exercise price is subject to adjustment. The warrants have voting
rights unless cancelled in accordance with the terms of the warrant agreements.
PUT OPTION
Until December 31, 2000, the Series D Investors have the right, only if any
of the other Redeemable Warrant holders elect (and are able) to exercise their
respective Put Options, to require the Company to redeem all (or any portion) of
the warrants issued and outstanding. After December 31, 2000, the Series D
Investors have the unrestricted right to require the Company to redeem all (or
any portion) of the warrants issued and outstanding.
F-30
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
DEFINITIONS
The following terms are defined in the warrant agreements:
TRIGGERING EVENTS--Defined as either of the following: (i) the sale of all
or substantially all of the Company's assets or stock for cash in an amount
equivalent to a common stockholder equity valuation of $60,000,000 or more; or
(ii) a Qualified (Series D Investors) Public Offering.
REGISTERED PUBLIC OFFERINGS--Defined as the closing of underwritten public
offerings with gross proceeds of at least $25,000,000 and valuing the fully
diluted total common stock equity at an amount greater than or equal to
$60,000,000 but less than $75,000,000.
QUALIFIED (SERIES D INVESTORS) PUBLIC OFFERING--Defined as the closing of
underwritten public offerings with gross proceeds of at least $25,000,000 and
valuing the fully diluted total common stock equity at an amount equal to or
greater than the "Minimum Equity Market Value", as defined below.
MINIMUM EQUITY MARKET VALUE--Defined as: (i) for the period from February
20, 1996 through December 30, 1997--$75,000,000; (ii) for the period from
December 31, 1997 through December 30, 1998--$95,000,000; (iii) for the period
from December 31, 1998 through December 30, 1999-- $120,000,000. Antidilution
provisions set forth in the warrant agreements require adjustment of the
foregoing amounts. Through December 30, 1997, the adjusted Minimum Equity Market
Value is approximately $86,000,000 to $93,000,000, depending on the impact of
certain transactions.
In March, 1997, the Series D Investors agreed as part of the
Recapilalization to convert warrants to purchase 99,250 common shares into
common stock in exchange for the cancellation of all of the remaining warrants
outstanding.
SERIES E PREFERRED STOCK WARRANTS
DESCRIPTION OF REDEEMABLE WARRANTS
The Series E Preferred Stock warrants to purchase 49,079 common shares are
held by the Series D Investors and one of the Senior Subordinated Lenders (67%
and 33%, respectively, and collectively referred to as Series E Warrant
Holders). The warrants were issued on September 18, 1996 in conjunction with the
Company's sale of Series E Preferred Stock and are exercisable as of December
31, 1996. The Series E Warrant Holders are not entitled to receive any common
stock cash dividends. When and if cash dividends are declared, the number of
common shares subject to warrants and the per share exercise price is subject to
adjustment. The warrants have voting rights.
The warrant agreements provide for an increase in the number of common
shares subject to the warrants if certain "Private Financing" or "Registered
Public Offering" transactions, as defined below, occur prior to the exercise
date. The amount of the increase is a formula determined value based on the per
share price of the financing transactions. No increase in the number of common
shares is required provided the financing transactions result in a price in
excess of $14.32 per share.
PUT OPTION
Until December 31, 2000, the Series E Warrant Holders have the right, if a
Registered Public Offering occurs and if the warrants are then exercisable, to
require the Company to redeem all (or any portion) of the warrants issued and
outstanding. If a Registered Public Offering does not occur, the warrant holders
F-31
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--MANDATORILY REDEEMABLE COMMON STOCK WARRANTS (CONTINUED)
have the right, only if the Senior Lenders elect (and are able) to exercise
their respective Put Options, to require the Company to redeem all (or any
portion) of their warrants as are issued and outstanding. After December 31,
2000, warrant holders have the unrestricted right to require the Company to
redeem all (or any portion) of the warrants issued and outstanding.
DEFINITIONS
The following terms are defined in the warrant agreements:
PRIVATE FINANCING--Defined as any disposition by the Company or any selling
stockholder of any equity security or convertible security of the Company other
than pursuant to a Registered Public Offering.
REGISTERED PUBLIC OFFERING--Defined as the closing of an underwritten public
offering for the common stock of the Company.
NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK
At December 31, 1993, the Company's preferred shares were mandatorily
redeemable at the option of the holders. In conjunction with the 1994 debt
refinancing the Company's Articles of Incorporation were amended and the
preferred stockholders' mandatory redemption rights were terminated. As a
result, the Company's mandatorily redeemable preferred shares were reclassified
in the consolidated financial statements to stockholders' equity (deficit).
As of December 31, 1995, the number of preferred shares authorized to be
issued included 167,702 Series A shares, 1,636,316 Series B shares, and
3,000,000 Series C shares. On January 31, 1996 and September 15, 1996, the
Company's Articles of Incorporation were further amended to authorize the
issuance of 2,000,000 Series D shares and 1,500,000 Series E shares,
respectively. All preferred shares are without par value and each share is
entitled to one vote for each common share which would be issuable upon
conversion.
F-32
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED)
The table below summarizes preferred stock issued during the three year
period ended December 31, 1996 (amounts in thousands):
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E TOTAL
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993................... $ 168 $ 2,000 $ 3,000 $ -- $ -- $ 5,168
Issuance of 271,471 Series C preferred shares
at $1.50 per share, net of issuance costs
of $26,000................................. -- -- 381 -- -- 381
----- ----------- ----------- ----------- ----------- ---------
Balance, December 31, 1994 and December 31,
1995....................................... 168 2,000 3,381 -- -- 5,549
Issuance of 75,000 Series C preferred shares
at $1.50 per share......................... -- -- 112 -- -- 112
Issuance of 2,000,000 Series D preferred
shares as described below, net of issuance
costs of $558,000.......................... -- -- -- 5,450 -- 5,450
Issuance of 750,000 Series E preferred shares
as described below, net of issuance costs
of $137,000................................ -- -- -- -- 2,739 2,739
----- ----------- ----------- ----------- ----------- ---------
Balance, December 31, 1996................... $ 168 $ 2,000 $ 3,493 $ 5,450 $ 2,739 $ 13,850
----- ----------- ----------- ----------- ----------- ---------
----- ----------- ----------- ----------- ----------- ---------
</TABLE>
The following table summarizes the number of preferred shares outstanding as
of the dates indicated:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E TOTAL
--------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Number of shares outstanding as of
December 31, 1993....................... 167,702 1,583,532 2,000,000 -- -- 3,751,234
December 31, 1994....................... 167,702 1,583,532 2,271,471 -- -- 4,022,705
December 31, 1995....................... 167,702 1,583,532 2,271,471 -- -- 4,022,705
December 31, 1996....................... 167,702 1,583,532 2,346,471 2,000,000 750,000 6,847,705
</TABLE>
Concurrent with the 1994 debt refinancing, 271,471 Series C preferred shares
were issued to related parties consisting of 138,995 shares issued to certain
common stockholders ("Investors") and 132,476 shares issued to the Senior
Subordinated Debt Lenders.
On February 9, 1996, certain members of Company management purchased for
$112,000 an aggregate of 75,000 Series C preferred shares. On February 20, 1996,
the Company sold 2,000,000 Series D preferred shares at $3.25 per share and
issued Redeemable Warrants to purchase 194,618 common shares to the Series D
Investors. 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 were used to fund the Minority Interest
Acquisition.
On September 18, 1996, the Company sold 750,000 Series E preferred shares at
$4.00 per share and issued Redeemable Warrants to purchase 49,079 common shares
to the Series D Investors and the Senior Subordinated Lenders. 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 were used to fund the ADS Acquisition.
F-33
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Dividends are payable quarterly to the holders of preferred stock, when and
if declared by the Board of Directors. Cash dividends at the annual rate of
$.10, $.1263, $.15, $.325 and $.40 per share related to the Series A, Series B,
Series C, Series D and Series E shares, respectively, accumulate from July 1,
1993 for the Series A and Series B shares, from July 1, 1994 for the Series C
shares, from February 15, 1996 for the Series D shares and from September 18,
1996 for the Series E shares. All cumulative, unpaid dividends on the stock are
to be cancelled and eliminated if the Company's common stock becomes registered
in a public offering of common stock with gross proceeds of at least $10,000,000
at a per share price of not less than $15.87 on or before December 31, 1996. In
January 1997, the holders of the preferred stock agreed to extend the
cancellation date to May 5, 1997 and further, agreed to waive their right to
receive all cumulative unpaid dividends, contingent on the consummation of the
Offering. The Senior and Senior Subordinated Debt agreements prohibit the
Company from paying dividends and, as a result, no dividend payments have been
declared since issuance. Series A, Series B, Series C, Series D and Series E
accumulated dividends in arrears aggregate $58,000 ($.350 per share), $700,000
($.442 per share), $862,000 ($.379 per share), $568,000 ($.284 per share) and
$85,000 ($.113 per share), respectively, as of December 31, 1996.
Each share of preferred stock is convertible into .28357 of a share of
common stock, subject to adjustment in certain circumstances. All cumulative
unpaid dividends, if any, are payable upon conversion. Liquidation preference is
equal to $1.00, $1.263, $1.50, $3.25 and $4.00 per share for the Series A,
Series B, Series C, Series D and Series E shares, respectively, plus declared
but unpaid dividends. The aggregate liquidation preference for all preferred
stock, excluding accumulated dividends in arrears, is $15,187,000 as of December
31, 1996. Payment of the Series D and Series E preferred stock per share
liquidation preference, plus declared but unpaid dividends, is senior to the
Series A, Series B and Series C preferred stock. Payment of the Series A, Series
B and Series C preferred stock per share liquidation preference is pari passu to
the Series A, Series B and Series C stockholders as a group; payment of declared
but unpaid dividends are pro rata based on the relative proportion of the
amounts accumulated but unpaid. Payment of the Series D and Series E preferred
stock per share liquidation preference, plus declared but unpaid dividends, is
pari passu to the Series D and Series E stockholders as a group.
At December 31, 1996, the Company had warrants outstanding to purchase a
total of 52,784 Series B shares at an exercise price of $1.263 per share. The
warrants were issued in 1990 and expire on April 15, 2001. At December 31, 1996,
a total of 52,784 authorized and unissued Series B shares were reserved for
issuance upon exercise of the warrants.
NOTE 16--COMMON STOCK
At December 31, 1995 and 1996, the Company was authorized to issue 2,268,560
and 4,253,550 common shares, respectively, without par value. As of December 31,
1996, a total of 3,391,709 common shares were reserved for issuance upon
exercise of all warrants and stock options and the conversion of the preferred
stock and Convertible Notes.
At December 31, 1996, in addition to the Redeemable Warrants, the Company
had issued non-redeemable warrants to purchase a total of 9,355 common shares at
an exercise price of $4.454 per share expiring on February 20, 2001.
F-34
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--COMMON STOCK (CONTINUED)
The Company has a qualified stock option plan for key employees under which
options to purchase common shares may be granted. The plan permits the granting
of incentive stock options, as defined by Section 422 of the Internal Revenue
Code, non-qualified stock options, restricted stock options and stock
appreciation rights. The plan expires in 2003. Options generally vest in equal
installments over five years from the date of grant and remain exercisable until
December 31, 2002.
The following table summarizes stock option activity for the three years
ended December 31, 1996 (the grant date and per share exercise price is
parenthetically noted):
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
------------------------
AVAILABLE
FOR GRANT OUTSTANDING
---------- ------------
<S> <C> <C>
Options available for grant and outstanding, December 31, 1993......................... 145,471 67,915
Granted (February and November 1994 at $.529 per share)................................ (123,211) 123,211
Exercised.............................................................................. -- (2,269)
Expired or cancelled................................................................... 3,828 (3,828)
---------- ------------
Options available for grant and outstanding, December 31, 1994......................... 26,088 185,029
Increase in number of shares authorized................................................ 32,469 --
Granted (February and March 1995 at $.529 per share)................................... (37,573) 37,573
Expired or cancelled................................................................... 14,179 (14,179)
---------- ------------
Options available for grant and outstanding, December 31, 1995......................... 35,163 208,423
Increase in number of shares authorized................................................ 283,570 --
Granted (4,254 shares in February 1996 at $.529 per share, 87,198 and 14,887 shares in
September 1996 at $1.234 and $7.053 per share, respectively, and 40,692 shares in
December 1996 at $7.053 per share)................................................... (147,031) 147,031
Expired or cancelled (at $.529 per share).............................................. 453 (453)
---------- ------------
Options available for grant and outstanding, December 31, 1996......................... 172,155 355,001
---------- ------------
---------- ------------
</TABLE>
Options for 141,845 shares were exercisable as of December 31, 1996 at a
weighted-average exercise price of $.633 per share. The remaining options
outstanding vest each year as follows: 1997-- 53,371 shares; 1998--53,781
shares; 1999--27,353 shares; 2000--35,407 shares; 2001--43,244 shares.
The weighted-average exercise price of options outstanding was $.529 and
$1.724 per share at December 31, 1995 and 1996, respectively. The Company
believes the per share exercise price of options granted through February 1996
approximated the fair market value of the underlying common stock on the grant
date. The exercise price of options granted after February 1996 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
for the year ended December 31, 1996. Compensatory options for 14,025 shares
were exercisable as of December 31, 1996. The remaining compensatory options
outstanding vest each year on December 31 as follows: 1997--15,954 shares;
1998--18,846 shares; 1999--18,988 shares; 2000-- 31,720 shares; 2001--43,244
shares.
F-35
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--COMMON STOCK (CONTINUED)
The Company measures compensation expense related to its employee stock
option plan using the intrinsic value method as prescribed by APB Opinion No.
25. Had compensation cost for the Company's stock option plan been determined
based on the fair values of the options granted in 1995 and 1996 at the grant
dates consistent with the method of SFAS 123, the Company's net loss applicable
to common stockholders would have been as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net loss applicable to common stockholders
As reported........................................................... $ (3,307) $ (6,357)
Pro forma............................................................. (3,307) (6,362)
</TABLE>
For purposes of the pro forma presentation, the fair value for options
granted in 1995 and 1996 was estimated at the grant dates using a minimum value
method, assuming a risk-free interest rate of 5.5% with no projected dividend
yields. Unlike other permitted option pricing models, the minimum value method
excludes stock price volatility which cannot be reasonably estimated for the
Company. 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.
Pro forma per share information is not considered meaningful and has not
been presented above due to the Recapitalization that will occur concurrent with
the closing of the Offering.
NOTE 17--COMMITMENTS AND CONTINGENCIES
FORMER OWNER OF ACQUIRED BUSINESSES
In October 1991, a subsidiary of the Company acquired, in a purchase
transaction, the net assets and stock of several companies under common control
from the former owner (the "Former Owner"). The purchase agreements provided
for: (i) purchase price adjustments based on changes in working capital; (ii) a
consulting services agreement; and (iii) contingent consideration in the maximum
amount of $15,000,000 (of which none was ever paid) payable to the Former Owner
based upon the acquired businesses' future attainment of defined performance
criteria. During 1993 and 1994, the Company asserted various claims against the
Former Owner for breach of representation, warranty provisions, and violation of
various covenants set forth in the purchase agreements. The Former Owner
counterclaimed certain of these matters and litigation commenced.
On June 25, 1996, the Company and the Former Owner settled substantially all
claims which were the subject of the above arbitration and litigation. Under the
terms of the settlement, the Former Owner paid $190,000 to the Company as
consideration for both parties agreeing to release each other from all monetary
claims and terminating all agreements and pending arbitration and litigation
proceedings. The consolidated results of operations for the year ended December
31, 1996 include a net gain of $157,000 recorded pursuant to the settlement
agreement. The net gain reflects the write off of the net amount due to the
Former Owner of $242,000 and the $190,000 received in cash, reduced by the write
off of the remaining unamortized balances of non-compete agreements, which were
terminated, and a litigation claim.
F-36
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Both parties also agreed that the Company's claim for injunctive relief from
the Former Owner's alleged violation of various covenants contained in the
purchase agreements related to non-compete and disclosure of confidential
information would be decided by binding arbitration before a single arbitrator.
The arbitrator is empowered to decide only the matter of injunctive relief;
monetary claims for damages were resolved pursuant to the aforementioned
settlement agreement. Management believes the ultimate disposition of the
arbitration will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
MINORITY STOCKHOLDER
In December 1993, the Minority Stockholder filed a stockholders' derivative
suit against the Company, certain wholly owned subsidiaries of the Company, a
75% owned subsidiary of the Company (the "Majority Owned Subsidiary") and
certain current and former officers and directors of the wholly owned and
Majority Owned subsidiaries. The derivative suit was dismissed in conjunction
with the Company's acquisition of the Minority Stockholder's 25% interest on
February 20, 1996 (Note 2).
OTHER LITIGATION
The Company is a party to a license agreement with McDonnell Douglas
pursuant to which the Company may request certain data in order to design and
market modifications to aircraft manufactured by McDonnell Douglas. The
agreement provides that the Company will pay McDonnell Douglas a royalty of five
percent of the net sales price of all modifications sold by the Company for
which the Company has requested data from McDonnell Douglas. The Company has
requested data for a single modification, which modification the Company
believes is exempt from the obligation to pay royalties under the agreement.
McDonnell Douglas has made a demand for $650,000 for royalties. The Company does
not believe that it is obligated to McDonnell Douglas in any amount. However,
there can be no assurance that the Company will not be required to pay royalties
to McDonnell Douglas.
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
matter discussed in the preceding paragraph, 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
F-37
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--COMMITMENTS AND CONTINGENCIES (CONTINUED)
capital and operating lease commitments under non-cancelable leases are as
follows as of December 31, 1996 (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
Year ending December 31,
1997.................................................................. $ 314 $ 1,857
1998.................................................................. 278 1,799
1999.................................................................. 147 1,672
2000.................................................................. 27 1,427
2001.................................................................. 4 985
2002 and thereafter................................................... -- 4,052
----------- -----------
Total minimum payments required....................................... 770 $ 11,792
-----------
-----------
Less: Amount representing future interest cost........................ (108)
-----------
Recorded obligation under capital leases............................ $ 662
-----------
-----------
</TABLE>
Total rental expense charged to operations for the years ended December 31,
1994, 1995 and 1996 was $1,373,000, $1,531,000 and $1,614,000 respectively.
NOTE 18--CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION
During the three years ended December 31, 1996, the Company paid the
following amounts in cash (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest....................................................... $ 3,049 $ 3,275 $ 2,983
Income taxes paid.............................................. 33 33 132
</TABLE>
INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES
Certain noncash investing and financing transactions occurred during the
three years ended December 31, 1996, as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Debt incurred for the acquisition of machinery and equipment..... $ 276 $ 33 $ 414
Financing provided by sellers in connection with acquisitions.... -- -- 3,492
Liabilities assumed in conjunction with acquisitions............. -- -- 2,687
</TABLE>
F-38
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--FOREIGN OPERATIONS AND EXPORT REVENUES
FOREIGN OPERATIONS
The Company operates in one business segment--avionics components
manufacturing and integration services. Domestic and foreign operations consist
of (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Gross revenues
United States.................................................... $ 46,207 $ 54,394 $ 64,383
Western Europe................................................... 7,309 9,388 10,882
--------- --------- ---------
Total gross revenues........................................... 53,516 63,782 75,265
--------- --------- ---------
Less interarea transfers
United States.................................................... (721) (814) (1,496)
Western Europe................................................... (5,703) (7,129) (8,670)
--------- --------- ---------
Total interarea transfers...................................... (6,424) (7,943) (10,166)
--------- --------- ---------
Net revenues
United States.................................................... 45,486 53,580 62,887
Western Europe................................................... 1,606 2,259 2,212
--------- --------- ---------
Total net revenues............................................. $ 47,092 $ 55,839 $ 65,099
--------- --------- ---------
--------- --------- ---------
Income from operations
United States...................................................... $ 1,494 $ 1,354 $ 3,727
Western Europe..................................................... 266 501 746
Interarea eliminations............................................. -- (20) (222)
--------- --------- ---------
Total income from operations..................................... $ 1,760 $ 1,835 $ 4,251
--------- --------- ---------
--------- --------- ---------
Consolidated assets
United States...................................................... $ 35,990 $ 34,425 $ 67,889
Western Europe..................................................... 5,713 6,490 6,015
Interarea eliminations............................................. (4,018) (4,586) (4,638)
--------- --------- ---------
Total consolidated assets........................................ $ 37,685 $ 36,329 $ 69,266
--------- --------- ---------
--------- --------- ---------
</TABLE>
Interarea sales are accounted for at prices which the Company believes would
be equivalent to unaffiliated customer sales. Interarea transfers and
eliminations reflect the shipment of raw component parts between areas.
Operating income excludes net interest expense, other income (expense) and
minority interests which are directly attributable to the related operations.
Corporate assets are included with United States assets.
EXPORT REVENUES
Consolidated revenues include export revenues of $2,890,000, $5,161,000 and
$6,484,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
Export revenues are primarily derived from sales to customers located in Western
Europe, the Far East and Canada.
F-39
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20--EMPLOYEE BENEFIT PLANS
The Company's Swiss subsidiary sponsors a defined contribution pension plan
covering substantially all of its employees as required by Swiss law.
Contributions and costs, which are shared equally by the Company and the
employees, are determined as a percentage of each covered employees' salary.
Company contributions and costs associated with the plan were $100,000, $148,000
and $151,000 for the years ended December 31, 1994, 1995 and 1996, 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 make a contribution up
to a maximum amount defined in the Plan. The Company and its subsidiaries may
make periodic discretionary matching contributions to the Plan. No matching
contributions were made to the plan during the years ended December 31, 1994,
1995 and 1996. The costs associated with administering the plan were not
significant for any period presented.
F-40
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--RELATED PARTY TRANSACTIONS
The Company's transactions with related parties included in the consolidated
financial statements are summarized in the table below (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
INVESTORS
14% demand notes
Interest earned during the period................................................ $ 113 $ -- $ --
Amount repaid, including accrued interest, with proceeds from the 1994 debt
refinancing.................................................................... 1,281 -- --
Purchase of 271,471 shares of Series C preferred stock at $1.50 per share.......... 208 -- --
SENIOR SUBORDINATED LENDERS
Interest and advisory fees
Earned during the period......................................................... 150 912 983
Accrued and payable as of period end............................................. 137 -- 43
Purchase of Convertible Notes, Series E preferred stock and Redeemable Warrants in
conjunction with the ADS Acquisition............................................. -- -- 2,000
Fees and expenses earned --
Capitalized as deferred financing costs.......................................... 140 -- 18
Recorded as a reduction of gross proceeds from the sale of preferred shares...... -- -- 18
SERIES D INVESTORS
Purchases of debt and equity securities
Series D preferred stock and Redeemable Warrants in conjunction with Minority
Interest Acquisition........................................................... -- -- 6,500
Convertible Notes, Series E preferred stock and Redeemable Warrants in
conjunction with the ADS Acquisition........................................... -- -- 4,000
Fees and expenses earned --
Capitalized as deferred financing costs.......................................... -- -- 37
Recorded as a reduction of gross proceeds from the sale of preferred shares...... -- -- 37
Convertible Notes interest earned and accrued and payable as of year end........... -- -- 86
</TABLE>
F-41
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--RELATED PARTY TRANSACTIONS (CONTINUED)
Each related party is described below and their fully diluted equity
securities ownership percentage of the Company, as of December 31, 1996, is
computed based upon the issued and outstanding Convertible Notes (Note 8),
Redeemable Warrants (Note 14), preferred stock and warrants (Note 15) and common
stock and warrants (Note 16):
INVESTORS--Own 32.2% of the Company's issued and outstanding equity
securities and are represented on the Company's Board of Directors (Notes
14, 15 and 16).
SENIOR SUBORDINATED LENDERS--Own 20.6% of the Company's issued and
outstanding equity securities (including 8.1% acquired from an Investor in a
private transaction in 1994), are represented on the Company's Board of
Directors, and provide a portion of the Company's Convertible Notes
financing and the Subordinated Debt (Notes 8, 10, 14, 15 and 16).
SERIES D INVESTORS--Own 36.1% of the Company's issued and outstanding equity
securities, are represented on the Company's Board of Directors, and provide
a portion of the Company's Convertible Notes financing (Notes 8, 14, 15 and
16).
F-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Allard Industries, Inc.
In our opinion, the accompanying balance sheets and the related statements
of income and changes in owner's net investment and of cash flows present
fairly, in all material respects, the financial position of Aerospace Display
Systems, a division of Allard Industries, Inc., at December 31, 1994 and 1995
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
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.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
August 2, 1996
F-43
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER
1994 1995 18, 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 1 $ 1 $ 1
Accounts receivable, net.................................. 1,347 1,339 1,292
Inventories............................................... 2,520 2,961 3,273
Prepaid expenses.......................................... 15 27 47
---------- ----------- -----------
Total current assets.................................... 3,883 4,328 4,613
Property and equipment, net................................. 221 328 319
Other assets................................................ 27 45 40
---------- ----------- -----------
Total assets............................................ $ 4,131 $ 4,701 $ 4,972
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND OWNER'S NET INVESTMENT
Current liabilities
Accounts payable.......................................... $ 409 $ 597 $ 405
Accrued expenses.......................................... 278 281 246
---------- ----------- -----------
Total current liabilities............................... 687 878 651
Commitments and contingencies (Note 9)
Owner's net investment...................................... 3,444 3,823 4,321
---------- ----------- -----------
Total liabilities and owner's net investment............ $ 4,131 $ 4,701 $ 4,972
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED NINE MONTHS JANUARY 1
DECEMBER 31, ENDED TO
------------------------------- SEPTEMBER 30, SEPTEMBER 18,
1993 1994 1995 1995 1996
--------- --------- --------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 8,859 $ 8,259 $ 9,952 $ 7,649 $ 7,706
Cost of sales.................................... 6,483 6,192 6,594 5,154 4,855
--------- --------- --------- ------- -------
Gross profit................................... 2,376 2,067 3,358 2,495 2,851
Selling, general and administrative expenses..... 1,642 1,516 1,991 1,454 1,286
--------- --------- --------- ------- -------
Income from operations......................... 734 551 1,367 1,041 1,565
Interest expense................................. 209 204 150 122 52
--------- --------- --------- ------- -------
Income before provision for income taxes....... 525 347 1,217 919 1,513
Provision for income taxes....................... 207 141 495 374 615
--------- --------- --------- ------- -------
Net income..................................... $ 318 $ 206 $ 722 $ 545 $ 898
--------- --------- --------- ------- -------
--------- --------- --------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
STATEMENTS OF CHANGES IN OWNER'S NET INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1
------------------------------- TO
1993 1994 1995 SEPTEMBER 18,
--------- --------- --------- 1996
---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Owner's net investment at beginning of period..................... $ 3,438 $ 3,189 $ 3,444 $ 3,823
Net income........................................................ 318 206 722 898
Net change in interdivision payables and other borrowings......... (567) 49 (343) (400)
--------- --------- --------- -------
Owner's net investment at end of period........................... $ 3,189 $ 3,444 $ 3,823 $ 4,321
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED NINE MONTHS JANUARY 1
DECEMBER 31, ENDED TO
------------------------------- SEPTEMBER 30, SEPTEMBER 18,
1993 1994 1995 1995 1996
--------- --------- --------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income......................................... $ 318 $ 206 $ 722 $ 545 $ 898
Adjustments to reconcile net income to net cash
provided by (used for) operating activities
Depreciation..................................... 16 33 49 35 51
Changes in assets and liabilities
Accounts receivable............................ 277 (71) 8 (177) 47
Inventories.................................... 200 (201) (441) (86) (312)
Prepaid expenses............................... 7 16 (12) (12) (20)
Other assets................................... 15 -- (18) (4) 5
Accounts payable and accrued expenses.......... (193) 86 191 111 (227)
--------- --------- --------- ------ ------
Net cash provided by operating activities.... 640 69 499 412 442
--------- --------- --------- ------ ------
Cash flows from investing activities
Capital expenditures............................... (72) (118) (156) (115) (42)
--------- --------- --------- ------ ------
Net cash used in investing activities........ (72) (118) (156) (115) (42)
--------- --------- --------- ------ ------
Cash flows from financing activities
(Decrease) increase in interdivision payables and
other borrowings................................... (567) 49 (343) (297) (400)
--------- --------- --------- ------ ------
Net cash (used in) provided by financing
activities................................. (567) 49 (343) (297) (400)
--------- --------- --------- ------ ------
Net increase in cash and cash equivalents............ 1 -- -- -- --
Cash and cash equivalents at beginning of the
period............................................. -- 1 1 1 1
--------- --------- --------- ------ ------
Cash and cash equivalents at end of period........... $ 1 $ 1 $ 1 $ 1 $ 1
--------- --------- --------- ------ ------
--------- --------- --------- ------ ------
Supplemental disclosure of cash flow information--
Cash paid during the period for interest........... $ 209 $ 199 $ 157 $ 127 $ 60
--------- --------- --------- ------ ------
--------- --------- --------- ------ ------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Aerospace Display Systems ("ADS" or the "Division") located in Hatfield,
Pennsylvania is a division of Allard Industries, Inc. ("Allard") and was
acquired from the BF Goodrich Company ("BF Goodrich") in a purchase transaction
in December 1992. ADS designs and manufactures dichroic liquid crystal displays
("LCDs") and modules for both military and commercial aerospace applications for
the domestic and foreign aircraft industry, principally in North America and
Europe.
On July 26, 1996 Allard entered into an agreement to sell certain assets and
the business of the Division to a subsidiary of DeCrane Aircraft Holdings, Inc.
(Note 10).
BASIS OF PRESENTATION
Preparation of these financial statements in conformity with generally
accepted accounting principles requires the Division to make estimates and
assumptions that affect the reported amounts on the balance sheets, at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
The statements of income and changes in owner's net investment includes all
charges applicable to the Division. Allard provides certain services to, and
incurs costs on behalf of, the Division. All of the allocations and estimates in
the financial statements are based on assumptions that the Division and Allard
believe are reasonable.
The financial information as of September 18, 1996 and for the nine months
ended September 30, 1995 and for the period from January 1 to September 18, 1996
is unaudited. In the opinion of the Division, the unaudited financial
information is presented on a basis consistent with the audited financial
statements and contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for such interim
periods presented. The results of operations for interim periods are not
necessarily indicative of results of operations for the full year.
INVENTORIES
Inventories are stated principally at the lower of cost or market, as
determined under the last-in, first-out ("LIFO") method. Costs include
materials, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using
straight-line and accelerated methods over their estimated useful lives, ranging
from four to fifteen 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 cost of 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.
F-48
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The taxable income of the Division is included in the consolidated tax
return of Allard. As such, separate income tax returns were not prepared or
filed by the Division. The provision for income taxes included in these
financial statements has been calculated as if the Division was a tax paying
entity, using Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Under the liability method specified in SFAS
109, 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 liability for
deferred taxes.
REVENUE RECOGNITION
Revenues from the sale of manufactured products are recorded when products
are shipped.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash equivalents include
short-term, highly liquid investments with original maturities of three months
or less.
ACCOUNTS RECEIVABLE
Accounts receivable is net of an allowance for doubtful accounts of $28,000
at December 31, 1994 and 1995 (none at September 18, 1996).
NOTE 2--INVENTORIES
Inventories are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 18,
1994 1995 1996
------------ -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Raw material................................. $ 832 $ 977 $ 1,260
Work-in process.............................. 655 533 560
Finished goods............................... 1,033 1,451 1,453
------------ ------- -------
Total inventories.......................... $ 2,520 $ 2,961 $ 3,273
------------ ------- -------
------------ ------- -------
</TABLE>
The division uses the last-in, first-out method ("LIFO") for valuing its
inventory. If the first-in, first-out ("FIFO") method had been used, inventories
would have been higher than reported by $33,000, $29,000 and $29,000 at December
31, 1994 and 1995 and September 18, 1996, respectively.
F-49
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.)
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment includes the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 18,
1994 1995 1996
--------- --------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment...................................... $ 214 $ 354 $ 380
Computer equipment, furniture and fixtures................... 45 45 61
Leasehold improvements....................................... 12 26 26
--------- --------- ------
Total cost................................................. 271 425 467
Accumulated depreciation................................... (50) (97) (148)
--------- --------- ------
Net property and equipment............................... $ 221 $ 328 $ 319
--------- --------- ------
--------- --------- ------
</TABLE>
The acquisition of the Division in December 1992 from BF Goodrich was a
bargain purchase transaction and as a result, all property and equipment was
recorded at $0 at the date of the acquisition. Depreciation expense related to
capital expenditures subsequent to the purchase transaction amounted to $16,000,
$33,000 and $49,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $35,000 and $51,000 for the nine months ended September 30,
1995 and the period from January 1 to September 18, 1996, respectively.
NOTE 4--RELATED PARTY TRANSACTIONS
NOTES PAYABLE
The Division's cash requirements were met by funds generated from
operations, supplemented as necessary by advances or borrowings from Allard.
Borrowings from Allard were made pursuant to unwritten, informal arrangements.
Interest was charged to the Division as the Division's share of Allard interest
expense based on the Division's proportionate share of total Allard borrowings.
Interest expense was $209,000, $204,000 and $150,000 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $122,000 and $52,000 for the
nine months ended September 30, 1995 and the period from January 1 to September
18, 1996, respectively. Amounts payable to Allard are classified with owner's
net investment in the accompanying balance sheets.
CORPORATE EXPENSES
The results of operations include significant transactions with Allard
business units that are outside of the Division's operations. These transactions
involve functions and services (such as executive management, cash management,
tax administration and strategic planning) that were provided to the Division by
these other Allard units. The payroll cost of these functions and services has
been allocated to the Division based on Allard management's estimated
proportionate level of effort in servicing the Division. Other costs of these
functions and services have been allocated to the Division based on its revenues
in proportion to other Allard divisions. Allard and the Division's management
believe this allocation methodology is reasonable. Corporate charges were
$345,000, $264,000 and $360,000 for the years ended December 31, 1993, 1994, and
1995, respectively, and $240,000 and $301,000 for the
F-50
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.)
NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)
nine months ended September 30, 1995 and the period from January 1 to September
18, 1996, respectively.
PURCHASES
Purchases by the Division from other divisions of Allard were $347,000,
$468,000 and $440,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $307,000 and $227,000 for the nine months ended September 30,
1995 and the period from January 1 to September 18, 1996, respectively.
NOTE 5--PENSION PLAN
Allard has a defined contribution 401(k) plan in which substantially all
employees of the Division may participate. Under this plan, employees may make
voluntary contributions of their compensation. The Division may make periodic
discretionary matching contributions to the plan. No matching contributions were
made to the plan during the years ended December 31, 1993, 1994 and 1995.
NOTE 6--CONCENTRATION OF CREDIT RISK AND OTHER INFORMATION
The Division's sales are made principally to commercial OEM customers,
airlines and U.S. government subcontractors. Sales to U.S. government
subcontractors amounted to approximately $4,291,000, $3,869,000 and $3,454,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and
$2,962,000 and $2,917,000 for the nine months ended September 30, 1995 and the
period from January 1 to September 18, 1996, respectively.
The Division is potentially subject to concentrations of credit risk as the
Division relies heavily on customers operating in the domestic and foreign
commercial aircraft industry. Generally, the Division 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 Division maintains reserves for potential credit losses.
Certain customers each accounted for more than 10% of the Division's
revenues, as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED NINE MONTHS JANUARY 1
DECEMBER 31, ENDED TO
------------------------------------- SEPTEMBER 30, SEPTEMBER 18,
1993 1994 1995 1995 1996
----- ----- ----- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A........................... 16% 12% 10% 11% 7%
Customer B........................... 13% 10% 8% 9% 9%
Customer C........................... 18% 3% 10% 10% 13%
Customer D........................... 6% 10% 9% 9% 6%
-- -- -- -- --
Total.............................. 53% 35% 37% 39% 35%
-- -- -- -- --
-- -- -- -- --
</TABLE>
F-51
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.)
NOTE 6--CONCENTRATION OF CREDIT RISK AND OTHER INFORMATION (CONTINUED)
Complete loss of any of these customers could have an adverse impact on the
future results of operations.
Revenues include export revenues, principally to Western Europe, of
$1,030,000, $1,930,000 and $1,623,000 for the years ended December 31, 1993,
1994 and 1995, respectively, and $1,513,000 and $1,289,000 for the nine months
ended September 30, 1995 and the period from January 1 to September 18, 1996,
respectively.
NOTE 7--ACCRUED EXPENSES
Accrued expenses are comprised of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 18,
1994 1995 1996
--------- --------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Salaries, wages and compensated absences and payroll related
taxes...................................................... $ 113 $ 116 $ 171
Commissions.................................................. 43 40 34
Warranty..................................................... 70 82 15
Other accrued expenses....................................... 52 43 26
--------- --------- -----
Total accrued expenses..................................... $ 278 $ 281 $ 246
--------- --------- -----
--------- --------- -----
</TABLE>
NOTE 8--INCOME TAXES
The provisions for income taxes are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current
U.S. federal....................................................... $ 119 $ 16 $ 355
State.............................................................. 31 5 116
--------- --------- ---------
Total current.................................................... 150 21 471
--------- --------- ---------
Deferred
U.S. federal....................................................... 43 90 18
State.............................................................. 14 30 6
--------- --------- ---------
Total deferred................................................... 57 120 24
--------- --------- ---------
Total provision................................................ $ 207 $ 141 $ 495
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-52
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.)
NOTE 8--INCOME TAXES (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross deferred tax liabilities
Inventory........................................................ $ 341 $ 341 $ 341
Other............................................................ 18 18 18
--------- --------- ---------
Gross deferred tax liabilities................................. 359 359 359
--------- --------- ---------
Gross deferred tax (assets)
Fixed assets..................................................... (233) (127) (59)
Accrued expenses................................................. (63) (55) (59)
Other............................................................ (22) (16) (56)
--------- --------- ---------
Gross deferred tax (assets).................................... (318) (198) (174)
--------- --------- ---------
Net deferred tax liability................................... $ 41 $ 161 $ 185
--------- --------- ---------
--------- --------- ---------
</TABLE>
The net deferred tax liability has been included in owner's net investment
in each period. Income taxes currently payable, and deemed remitted by the
Division to Allard, amounted to $150,000, $22,000 and $471,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
The provision for income tax differs from the amount of income tax
determined by applying the applicable U.S. statutory federal rate to the income
before income taxes as a result of the following differences (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Income tax at U.S. statutory rates................................... $ 179 $ 118 $ 414
State income taxes, net of federal benefit........................... 28 23 80
Other, net........................................................... -- -- 1
--------- --------- ---------
Income tax at effective rates...................................... $ 207 $ 141 $ 495
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-53
<PAGE>
AEROSPACE DISPLAY SYSTEMS
(A DIVISION OF ALLARD INDUSTRIES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 18, 1996, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 AND FOR THE PERIOD FROM JANUARY 1 TO SEPTEMBER 18, 1996 IS UNAUDITED.)
NOTE 9--COMMITMENTS AND CONTINGENCIES
The Division has entered into certain operating leases which require minimum
annual payments as follows: 1996--$193,000; 1997--$194,000; 1998--$184,000;
1999--$139,000, and 2000--$15,000. The total rental expense for all operating
leases was $238,000, $166,000 and $181,000 for the years ended December 31,
1993, 1994 and 1995, respectively.
The Division is also subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
material adverse effect on the financial position, results of operations or cash
flows of the Division.
NOTE 10--EVENT SUBSEQUENT TO REPORT OF INDEPENDENT ACCOUNTANTS (UNAUDITED)
On September 18, 1996, a subsidiary of DeCrane Aircraft Holdings, Inc.
consummated the purchase from Allard of the assets, subject to the liabilities,
of the Division.
F-54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE
COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF
THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Recent Developments....................................................... 13
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Consolidated Financial Data...................................... 19
Unaudited Pro Forma Consolidated Financial Data........................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 30
Management................................................................ 47
Principal and Selling Stockholders........................................ 53
Certain Transactions...................................................... 55
Description of Capital Stock.............................................. 56
Shares Eligible for Future Sale........................................... 61
Underwriting.............................................................. 62
Legal Matters............................................................. 63
Experts................................................................... 63
Additional Information.................................................... 63
Index to Financial Statements............................................. F-1
</TABLE>
--------------------------
UNTIL MAY , 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH THIS RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,597,426 SHARES
[LOGO]
DECRANE AIRCRAFT
HOLDINGS, INC.
COMMON STOCK
($.01 PAR VALUE)
SCHRODER WERTHEIM & CO.
DILLON, READ & CO. INC.
ING BARINGS
APRIL , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 incurred or
expected to be incurred by the Registrant in connection with the issuance and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
SEC Registration Fee............................................................. $ 13,577
NASD Filing Fee.................................................................. 4,981
Nasdaq National Marketing Listing Fee............................................
Blue Sky Filing Fees and Expenses................................................
Printing and Engraving Costs.....................................................
Transfer Agent Fees..............................................................
Legal Fees and Expenses..........................................................
Accounting Fees and Expenses.....................................................
Miscellaneous....................................................................
-----------
Total........................................................................ $
-----------
-----------
</TABLE>
- ------------------------
* To be filed by amendment.
All amounts are estimated except for the SEC Registration Fee, the NASD
Filing Fee and the NASDAQ National Market Listing Fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation 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.
The provision does not, however, eliminate or limit the personal liability of a
director: (i) for any breach of such director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) under the
Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock purchases or
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of the Company protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of the 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 Commission 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 the Company's Bylaws
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 of the Company, 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 provisions of
GCLSD. The Company may from time to time agree to provide similar
indemnifications to certain employees and other agents.
The Company also maintains directors' and officers' liability insurance.
II-1
<PAGE>
In addition, the Underwriting Agreement provides for indemnification by the
Underwriters of the Registrant, its directors and officers against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) Pursuant to a Securities Purchase Agreement dated November 2, 1994 and
Electra Investment Trust P.L.C. and Electra Associates, Inc (collectively,
"Electra") and DSV Partners, the Company sold 271,471 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 Act.
(2) Pursuant to an Amended and Restated Credit Agreement dated as of
November 2, 1994 among the Company, Provident Bank ("Provident") and
Internationale Nederlanden (U.S.) Capital Corporation ("ING), the Company issued
warrants to purchase an aggregate of 84,748 shares of Common Stock in connection
with the amendment and restatement of the Company's credit agreement. Also in
connection with the Amended and Restated Credit Agreement the Company issued
warrants to purchase an aggregate of 94,558 shares of Common Stock to a former
lender to the Company. The issuance of these securities was exempt from
registration pursuant to Section 4(2) of the Act.
(3) Pursuant to a Securities Purchase Agreement dated as of November 2,
1994 among the Company and Electra, the Company issued for a purchase price of
$7.0 million (i) 12% Senior Subordinated Notes due December 31, 2001 having an
aggregate principal amount of $7.0 million, and (ii) warrants to purchase
266,990 shares of Common Stock. The issuance of these securities was exempt from
registration pursuant to Section 4(2) of the Act.
(4) Pursuant to a Securities Purchase Agreement dated as of February 20,
1996 among the Company, Nassau Capital Partners, L.P. and NAS Partners I,
L.L.C., the Company issued an aggregate purchase price of $6.5 million (i)
2,000,000 shares of Series D Preferred Stock, and (ii) 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 Act.
(5) In January 1994, the Company sold 2,269 shares of Common Stock for $.53
per share to John Schnepf. Such securities were sold pursuant to the exercise of
stock options.
(6) Pursuant to a Securities Purchase Agreement dated February 9, 1996
among the Company, R.G. MacDonald, Charles Becker, Robert Rankin and John Hinson
the Company 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 Act.
(7) Pursuant to a Securities Purchase Agreement dated September 18, 1996
among the Company, Nassau the Company sold (i) $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 (ii) 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 Act.
(8) Pursuant to an Amended and Restated Credit Agreement dated as of
September 18, 1996 among the Company, Provident and Internationale Nederlanden
(U.S.) Capital Corporation., ING and Provident Bank, the Company issued 70,892
warrants to purchase Common Stock as additional consideration for amendments to
documents governing certain indebtedness of the Company. The issuance of these
securities was exempt from registration pursuant to Section 4(2) of the Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement**
1.2 Form of Agreement Among Underwriters*
3.1 Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Specimen Certificate*
5.1 Opinion of Spolin & Silverman (re legality)*
10.1 1993 Share Incentive Plan**
10.2 Tax Sharing Agreement dated March 15, 1993 between the Company TSH and Hollingsead
International, Inc.**
10.3 Employment Agreement dated September 1, 1994 between the Company and R. Jack
DeCrane**
10.4 Employment Agreement dated June 28, 1993 between the Company and R. G. MacDonald**
10.5 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the
Allard Children's Trust f/b/o John R. Allard**
10.6 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the
Allard Children's Trust f/b/o Michael E. Allard**
10.7 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Younes
Nazarian**
10.8 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and David
and Angela Nazarian, Trustees of the Nazarian Family Trust**
10.9 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Gerald
R. Allard, Trustee of the Gerald R. Allard Revocable Trust of 1994**
10.10 Fourth Amended and Restated Registration Rights Agreement dated September 18, 1996
among the Company, Banc One Capital Partners Corporation, Brantley Venture
Partners II, L.P., R. Jack DeCrane, DSV Parnters, IV, Electra Investment Trust,
P.L.C., Internationale Nederlanden (U.S.) Capital Corporation, Electra Associates,
Inc., The Provident Bank, Nassau Capital Partners L.P., NAS Partner I L.L.C.
10.11 Fourth Amended and Restated Shareholders Agreement dated September 18, 1996 among
the Company, Banc One Capital Partners Corporation, Brantley Venture Partners II,
L.P., R. Jack DeCrane, DSV Partners, IV, Electra Investment Trust, P.L.C.,
Internationale Nederlanden (U.S.) Capital Corporation, Electra Associates, Inc.,
The Provident Bank, Nassau Capital Partners L.P., NAS Partner I L.L.C.**
10.12 Lease dated September 1989 as amended on December 15, 1993 among Continental
Development Corporation, Tri-Star Electronics, Inc., and Cory Components, Inc. for
real property in El Segundo, CA**
10.13 Amended and Restated Credit Agreement, dated September 18, 1996, among the Comapny,
ADS Acquisition, Inc., Tri-Star Holdings, Inc., Tri-Star Electronics
International, Inc., Tri-Star Technologies, Inc., Tri-Star Technologies, Tri-Star
Electronics Europe S.A., Mezzovico, Cory Holdings, Inc., Cory Components, Inc.,
Hollingsead International, Inc., Hollingsead International Limited, The Provident
Bank, and Internationale Nederlanden (U.S.) Capital Corporation**
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.14 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory
Components, Number 6-5752-0002**
10.15 Special Business Provisions dated November 30, 1995 between the Boeing Company and
Cory Components, Number 6-5752-0004**
10.16 Purchase Agreement 9423JC4548 between Boeing Defense & Space-Irving Co. and Cory
Components, January 1, 1995 through December 31, 1999**
10.17 Electrical Contact Procurement Contract Letter of Agreement, dated June 28, 1993
between Boeing Commercial Airplane Group and Tri-Star Electronics International**
10.18 Asset Purchase and Sale Agreement by and among Allard Industries, Inc., Gerald R.
Allard, Trustee of the Gerald R. Allard Revocable Trust of 1994, The Allard
Children's Trust f/b/o John Allard, The Allard Children's Trust f/b/o Michael E.
Allard, Younes Nazarian and David and Angela Nazarian, Trustees of the Nazarian
Family Trust, the principal shareholders of Allard, the Company and ADS
Acquisition, Inc.**
10.19 Assets Purchase and Sale Agreement dated December 4, 1996 among the Company, EE
Acquisition, Inc., William Lyon, and Elsinore LP**
10.20 Asset Purchase and Sale Agreement dated November 25, 1996 among AMP, Incorporated,
the Whitaker Corporation and DeCrane Aircraft Holdings, Inc.**
10.21 Stock Purchase Agreement, dated January 1, 1995, among the Company and Cory
Components, Inc.**
10.22 Securities Purchase Agreement, dated September 18, 1996 among the Company, Nassau
Capital Partners L.P., NAS Partners I L.L.C., and Electra Investment Trust
P.L.C.**
10.23 Securities Purchase Agreement, dated February 20, 1996 among the Company, Nassau
Capital Partners L.P. and NAS Partners I L.L.C.**
10.24 Securities Purchase Agreement dated November 2, 1994, as amended on February 20,
1996, among the Company, Electra Investment Trust P.L.C. and Electra Associates,
Inc.**
10.25 Letter Agreement dated November 24, 1994 between the Company and Charles Becker**
10.26 Warrant Agreement dated November 2, 1994 between the Company and Internationale
Nederlanden (U.S.) Capital Corporation**
10.27 Form of Warrant Agreement relating to the Company's Series E Warrants**
10.28 Form of Warrant Agreement relating to the Company's Series F Warrants**
10.29 Form of Warrant Agreement relating to the Company's Series G Warrants**
10.30 Form of Warrant Agreement relating to the Company's Series H Warrants**
10.31 Share Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald,
Charles Becker, Robert Rankin**
10.32 Agreement dated February , 1997 between the Company and Nassau*
10.33 401(k) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992
between the Company and The Lincoln National Life Insurance Company**
10.34 Agreement dated January 10, 1997 among the Company and its shareholders relating to
the Recapitalization**
11.1 Statement regarding computation of per share earnings of the Company**
21.1 List of Subsidiaries of Registrant
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
23.1 Consent of Price Waterhouse, LLP
23.2 Consent of Spolin & Silverman (included in Exhibit 5.1)*
24.1 Power of Attorney (appears on signature page)**
27 Financial Data Schedule**
</TABLE>
- ------------------------
* To be filed by amendment.
** 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.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
This Amendment to Registration Statement and Power of Attorney, pursuant to
the requirements of the Securities Act of 1933, as amended, has been signed on
its behalf by the undersigned, thereunto duly authorized, in the State of
California, on this 26th day of March, 1997.
DECRANE AIRCRAFT HOLDINGS, INC.
By: /s/ R. JACK DECRANE
------------------------------------------
Name: R. Jack DeCrane
Title:Chairman of the Board and
Chief Executive
POWER OF ATTORNEY
Pursuant to the requirement of the Securities Act of 1933, as amended, this
Amendment to Registration Statement have been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ------------------------- --------------------
<C> <S> <C>
/s/ R. JACK DECRANE Chairman of the Board,
------------------------------------------- Chief Executive Officer March 26, 1997
R. Jack DeCrane and Director
R. G. MACDONALD* Vice Chairman of the
------------------------------------------- Board and Director March 26, 1997
R. G. MacDonald
Chief Financial Officer
ROBERT A. RANKIN* and Secretary
------------------------------------------- (principal accounting March 26, 1997
Robert A. Rankin officer)
JAMES R. BERGMAN*
------------------------------------------- Director March 26, 1997
James R. Bergman
PAUL H. CASCIO*
------------------------------------------- Director March 26 1997
Paul H. Cascio
JONATHAN A. SWEEMER*
------------------------------------------- Director March 26, 1997
Jonathan A. Sweemer
*By: /s/ R. JACK DECRANE
------------------------------------------- Attorney in fact March 26 1997
R. Jack DeCrane
</TABLE>
II-6
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COST AND CHARGED TO BALANCE AT
CLASSIFICATIONS PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
- ------------------------------------------- ------------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for Doubtful Accounts............ $ 320,000 $ 51,000 $ 3,000(A) $ 131,000 $ 243,000
Reserve for excess, slow moving and
potentially obsolete material............ $ 593,000 $ 300,000 -- -- $ 893,000
YEAR ENDED DECEMBER 31, 1995
Allowance for Doubtful Accounts............ $ 243,000 $ 66,000 $ 62,000(B) $ 112,000 $ 259,000
Reserve for excess, slow moving and
potentially obsolete material............ $ 893,000 $ 416,000 -- $ 155,000 $ 1,154,000
YEAR ENDED DECEMBER 31, 1996
Allowance for Doubtful Accounts............ $ 259,000 $ 68,000 $ 71,000(C) $ 19,000 $ 379,000
Reserve for excess, slow moving and
potentially obsolete material............ $ 1,154,000 $ 1,055,000 $ -- $ 116,000 $ 2,093,000
</TABLE>
- ------------------------
<TABLE>
<C> <S> <C> <C> <C>
(A) Effect of foreign currency translation.
(B) Comprised of the following:
Effect of foreign currency translation; $ 3,000
Recovery of amounts previously written off. 59,000
------------
$ 62,000
------------
------------
(C) Comprised of the following:
Effect of foreign currency translation; $ (4,000)
Recovery of amounts previously written off; 20,000
Attributable to the ADS acquisition; 50,000
Attributable to the Elsinore acquisition. 5,000
------------
$ 71,000
------------
------------
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
1.1 Form of Underwriting Agreement**
1.2 Form of Agreement Among Underwriters*
3.1 Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Specimen Certificate*
5.1 Opinion of Spolin & Silverman (re legality)*
10.1 1993 Share Incentive Plan**
10.2 Tax Sharing Agreement dated March 15, 1993 between the Company TSH and Hollingsead
International, Inc.**
10.3 Employment Agreement dated September 1, 1994 between the Company and R. Jack DeCrane**
10.4 Employment Agreement dated June 28, 1993 between the Company and R. G. MacDonald**
10.5 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the Allard
Children's Trust f/b/o John R. Allard**
10.6 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and the Allard
Children's Trust f/b/o Michael E. Allard**
10.7 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Younes Nazarian**
10.8 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and David and Angela
Nazarian, Trustees of the Nazarian Family Trust**
10.9 Restrictive Covenant Agreement among the Company, ADS Acquisition, Inc. and Gerald R. Allard,
Trustee of the Gerald R. Allard Revocable Trust of 1994**
10.10 Fourth Amended and Restated Registration Rights Agreement dated September 18, 1996 among the
Company, Banc One Capital Partners Corporation, Brantley Venture Partners II, L.P., R. Jack
DeCrane, DSV Parnters, IV, Electra Investment Trust, P.L.C., Internationale Nederlanden (U.S.)
Capital Corporation, Electra Associates, Inc., The Provident Bank, Nassau Capital Partners
L.P., NAS Partner I L.L.C.
10.11 Fourth Amended and Restated Shareholders Agreement dated September 18, 1996 among the Company,
Banc One Capital Partners Corporation, Brantley Venture Partners II, L.P., R. Jack DeCrane,
DSV Partners, IV, Electra Investment Trust, P.L.C., Internationale Nederlanden (U.S.) Capital
Corporation, Electra Associates, Inc., The Provident Bank, Nassau Capital Partners L.P., NAS
Partner I L.L.C.**
10.12 Lease dated September 1989 as amended on December 15, 1993 among Continental Development
Corporation, Tri-Star Electronics, Inc., and Cory Components, Inc. for real property in El
Segundo, CA**
10.13 Amended and Restated Credit Agreement, dated September 18, 1996, among the Comapny, ADS
Acquisition, Inc., Tri-Star Holdings, Inc., Tri-Star Electronics International, Inc., Tri-Star
Technologies, Inc., Tri-Star Technologies, Tri-Star Electronics Europe S.A., Mezzovico, Cory
Holdings, Inc., Cory Components, Inc., Hollingsead International, Inc., Hollingsead
International Limited, The Provident Bank, and Internationale Nederlanden (U.S.) Capital
Corporation**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
10.14 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components,
Number 6-5752-0002**
10.15 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory
Components, Number 6-5752-0004**
10.16 Purchase Agreement 9423JC4548 between Boeing Defense & Space-Irving Co. and Cory Components,
January 1, 1995 through December 31, 1999**
10.17 Electrical Contact Procurement Contract Letter of Agreement, dated June 28, 1993 between Boeing
Commercial Airplane Group and Tri-Star Electronics International**
10.18 Asset Purchase and Sale Agreement by and among Allard Industries, Inc., Gerald R. Allard,
Trustee of the Gerald R. Allard Revocable Trust of 1994, The Allard Children's Trust f/b/o
John Allard, The Allard Children's Trust f/b/o Michael E. Allard, Younes Nazarian and David
and Angela Nazarian, Trustees of the Nazarian Family Trust, the principal shareholders of
Allard, the Company and ADS Acquisition, Inc.**
10.19 Assets Purchase and Sale Agreement dated December 4, 1996 among the Company, EE Acquisition,
Inc., William Lyon, and Elsinore LP**
10.20 Asset Purchase and Sale Agreement dated November 25, 1996 among AMP, Incorporated, the Whitaker
Corporation and DeCrane Aircraft Holdings, Inc.**
10.21 Stock Purchase Agreement, dated January 1, 1995, among the Company and Cory Components, Inc.**
10.22 Securities Purchase Agreement, dated September 18, 1996 among the Company, Nassau Capital
Partners L.P., NAS Partners I L.L.C., and Electra Investment Trust P.L.C.**
10.23 Securities Purchase Agreement, dated February 20, 1996 among the Company, Nassau Capital
Partners L.P. and NAS Partners I L.L.C.**
10.24 Securities Purchase Agreement dated November 2, 1994, as amended on February 20, 1996, among the
Company, Electra Investment Trust P.L.C. and Electra Associates, Inc.**
10.25 Letter Agreement dated November 24, 1994 between the Company and Charles Becker**
10.26 Warrant Agreement dated November 2, 1994 between the Company and Internationale Nederlanden
(U.S.) Capital Corporation**
10.27 Form of Warrant Agreement relating to the Company's Series E Warrants**
10.28 Form of Warrant Agreement relating to the Company's Series F Warrants**
10.29 Form of Warrant Agreement relating to the Company's Series G Warrants**
10.30 Form of Warrant Agreement relating to the Company's Series H Warrants**
10.31 Share Purchase Agreement dated February 9, 1996 among the Company, R.G. MacDonald, Charles
Becker, Robert Rankin**
10.32 Agreement dated February , 1997 between the Company and Nassau*
10.33 401(k) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992 between the
Company and The Lincoln National Life Insurance Company.**
10.34 Agreement dated January 10, 1997 among the Company and its shareholders relating to the
Recapitalization.**
11.1 Statement regarding computation of per share earnings of the Company**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ -----
<C> <S> <C>
21.1 List of Subsidiaries of Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Spolin & Silverman (included in Exhibit 5.1)*
24.1 Power of Attorney (appears on signature page)**
27 Financial Data Schedule**
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/09/1997
971009523 - 2704913
CERTIFICATE OF INCORPORATION
OF
DAHX, INC.
FIRST: The name of the corporation (the "Corporation") shall be DAHX,
Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 15 East North Street, Dover, Delaware 19901, County of Kent.
The name of its registered agent at such address is Paracorp, Incorporated.
THIRD: The nature of the business or the purpose to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The aggregate number of shares of all classes of which the
Corporation shall have authority to issue is as follows:
(i) 35,000,000 shares of Common Stock, with par value of $0.01 per share
(the "Common Shares");
(ii) 167,702 shares of Series A Convertible Preferred Stock, with par
value of $0.01 per share (the "Series A Preferred Shares"), 1,646,316 shares
of Series B Convertible Preferred Stock, with par value of $0.01 per share
(the "Series B Preferred Shares"), 3,000,000 shares of Series C Convertible
Preferred Stock, with par value of $0.01 per share (the "Series C Preferred
Shares"), 2,000,000 shares of Series D Convertible Preferred Stock, with par
value of $0.01 per share (the "Series D Preferred Shares"), and 1,500,000
shares of Series E Convertible Preferred Stock, with par value of $0.01 per
share (the "Series E Preferred Stock," and, collectively, with all of the
shares described in this clause (h), the "Convertible Preferred Shares");
PROVIDED, HOWEVER, that the number of authorized Convertible Preferred Shares
of each series shall be reduced by the number of such Convertible Preferred
Shares converted to Common Shares from time to time or otherwise acquired by
the Corporation, and the Corporation shall not be authorized to issue
Convertible Preferred Shares in replacement of or substitution for any such
converted or acquired Convertible Preferred Shares; and
(iii) 10,000,000 shares of Preferred Stock, with par value of $0.01 per
share (the "Undesignated Preferred Shares" and together with the Convertible
Preferred Shares, the "Preferred Shares"). The Undesignated Preferred Shares
may be issued in one or more series. The Board of Directors is hereby
authorized pursuant to the General Corporation Law of Delaware to fix or
alter from time to time the designations, powers, preferences and rights and
the qualifications, limitations or restrictions of the shares of each such
series of Undesignated Preferred Stock, and to establish from time to time
the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series, but not below the
number of shares of such
<PAGE>
series then outstanding. In case the number of shares of any series shall be
decreased to accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
FIFTH: The following is a statement of the designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of the Convertible Preferred Shares:
1. Except to the extent prohibited by law and subject to the
restrictions contained in that certain Credit Agreement dated November 2,
1994 among DeCrane Aircraft Holdings, Inc., an Ohio corporation ("DAH Ohio"),
Internationale Nederlanden (U.S.) Capital Corporation, a Delaware corporation
("ING"), certain affiliates of DAH, Ohio and certain other parties, as such
agreement may be amended from time to time (the "Credit Agreement"), which
will be adopted by the Corporation following the merger of DAH Ohio with and
into the Corporation, and in that certain Securities Purchase Agreement dated
November 2, 1994 among DAH Ohio, Electra Investment Trust P.L.C., a
corporation organized under the laws of the United Kingdom ("EIT"), and
Electra Associates, Inc., a Delaware corporation ("Electra Associates" and
collectively, with EIT "Electra"), and certain affiliates of DAH Ohio, as
such agreement may be amended from time to time (the "Purchase Agreement"),
which will be adopted by the Corporation following the merger of DAH Ohio
with and into the Corporation, the holders of Series A Preferred Shares,
Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
Shares and Series E Preferred Shares shall be entitled to receive, pari
passu, when, as and if declared by the Board of Directors of the Corporation,
cash dividends out of funds legally available for such purpose. Cash
dividends at the annual rate of $.10 per Series A Preferred Shares, $.1263
per Series B Preferred Share, $.15 per Series C Preferred Share, $.325 per
Series D. Preferred Share and $.40 per Series E Preferred Share, whether or
not they are declared, shall cumulate from July 1, 1993 for the Series A
Preferred Shares and Series B Preferred Shares, from July 1, 1994 for the
Series C Preferred Shares, from February 15, 1996 for the Series D Preferred
Shares and from September 18, 1996 for the Series E Preferred Shares, and,
except to the extent prohibited by law and subject to the restrictions
contained in the Credit Agreement and the Purchase Agreement, such dividends
shall be payable quarterly, commencing July 1, 1993 for the Series A
Preferred Shares and the Series B Preferred Shares commencing July 1, 1994
for the Series C Preferred Shares, commencing February 15, 1996 for the
Series D Shares and commencing September 18, 1996 for the Series E Shares. In
the event that on or prior to May 5, 1997, the Corporation shall consummate
an underwritten public offering of Common Shares at a price to the public of
at least $4.50 per share (as adjusted for splits, stock dividends,
combinations and other events) with gross proceeds to the Corporation (before
deduction of underwriting discounts) of at least $10,000,000.00, all accrued
dividends on the Convertible Preferred Stock for the period ending on the
date of consummation of such offering shall be cancelled and eliminated. In
no event, so long as any Convertible Preferred Shares shall be outstanding,
shall any dividend whatsoever be declared or paid
- 2 -
<PAGE>
upon, nor shall any distribution made upon any Common Shares, whether in cash
or other property (excluding, however, dividends or distributions payable
solely in Common Shares) unless a dividend is paid or a distribution is made
simultaneously to holders of Convertible Preferred Shares immediately prior
to the record date for such dividend or distribution on the Common Shares.
2. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary:
(a) The holders of the Series D Preferred Shares and the Series
E Preferred Shares, before any distribution or payment is made upon any
Series A Preferred Shares, Series B Preferred Shares and Series C Preferred
Shares and Common Shares shall be entitled to be paid, pari passu, an amount
equal to (1) first, $3.25 per Series D Preferred Share and $4.00 per Series E
Preferred Share and (11) then an amount equal to any dividends thereon
declared but unpaid, and the holders of Series D Preferred Shares and Series
E Preferred Shares shall not be entitled to any further payment, such amounts
being sometimes referred to as the "Senior Liquidation Payments." If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series D Preferred Shares and Series E Preferred Shares shall be insufficient
to permit payment to such holders of the Senior Liquidation Payments, then
the entire assets of the Corporation to be so distributed shall be
distributed among each such series of Convertible Preferred Shares and among
the holders thereof (r) first, until all payments referred to in clause (i)
above have been made, pari passu, to the holders of the Series D Preferred
Shares and Series E Preferred Shares is the proportions set forth in clause
(l) above, and (y) then, to the extent that assets remain, to the payments
referred to in clause (ll) above pro rata to all holders of such series of
Preferred Shares in relative proportion to the amounts of accrued and unpaid
dividends with respect to each such Convertible Preferred Share. Upon any
such liquidation, dissolution or winding up of the Corporation, after the
holders of Series D Preferred Shares and Series E Preferred Shares shall have
been paid in full the amounts to which they shall be entitled, the remaining
net assets of the Corporation may be distributed to the holders of the Series
A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares
in the manner set forth in subparagraph 2(b).
(b) The holders of the Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares, before any distribution or
payment is made upon any Common Shares, shall be entitled to be paid, pari
passu, an amount equal to (i) first, $1.00 per Series A Preferred Share,
$1.263 per Series B Preferred Share and $1.50 per Series C Preferred Share,
and (11) then an amount equal to any dividends thereon declared but unpaid,
and the holders of Series A Preferred Shares. Series B Preferred Shares and
Series C Preferred Shares shall not be entitled to any further payment, such
amounts being sometimes referred to as the "Senior Subordinated Liquidation
Payments." If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of
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Series A Preferred Shares, Series B Preferred Shares and Series C Preferred
Shares after the Senior Liquidation Payments have been distributed shall be
insufficient to permit payments to such holders of the Senior Subordinated
Liquidation Payments, then the entire assets of the Corporation to be so
distributed shall be distributed ratably among each such series of
Convertible Preferred Shares and among the holders thereof (x) first, until
all payments referred to in clause (i) above have been made, pari passu, to
the holders of the Series A Preferred Shares, Series B Preferred Shares and
Series C Preferred Shares, in the proportion set forth in clause (i) above,
and (y) then, to the extent that assets remain, to the payments referred to
in clause (ii) above, pro rata to all holders of such series of Convertible
Preferred Shares in relative proportion to the amounts of accrued and unpaid
dividends with respect to each such Convertible Preferred Share.
(c) Upon any such liquidation, dissolution or winding up of the
Corporation, after the holders of Series D Preferred Shares and Series E
Preferred Shares, and the holders of Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares shall have been paid in full
the amounts to which they shall be entitled, the remaining net assets of the
Corporation may be distributed to the holders of Common Shares.
(d) Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Senior Liquidation Payments and
Senior Subordinated Liquidation Payments as the case may be, and the place
where said Senior Liquidation Payments and Senior Subordinated Liquidation
Payments, as the case may be, shall be payable, shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated
therein, to the holders of record of Series D Preferred Shares and Series E
Preferred Shares and to the holders of record of Series A Preferred Shares,
Series B Preferred Shares and Series C Preferred Shares, as the case may be,
such notice to be addressed to each such holder at his post office address as
shown by the records of the Corporation.
(e) For purposes of this paragraph 2 of Article FIFTH only, the
sale or transfer by the Corporation of all or substantially all its assets
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this paragraph 2. Such a
sale or transfer by the Corporation shall not be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of any other
Article of this Certificate of Incorporation.
3A. Subject to the terms and conditions of this paragraph 3, each holder
of Series A Preferred Shares, Series B Preferred Shares, Series C Preferred
Shares, Series D Preferred Shares or Series E Preferred Shares shall have the
right, at its option at any time, to convert any such Series A Preferred
Shares, Series B Preferred Shares, Series C Preferred Shares, Series D
Preferred Shares or Series E Preferred Shares (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the last full business day next preceding the date fixed
for payment
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of the amount distributable on the Series D Preferred Shares, the Series E
Preferred Shares, and the Series A Preferred Shares, the Series B Preferred
Shares and Series C Preferred Shares) into such number of fully paid and
nonassessable whole Common Shares as is obtained by, (i) in the case of
conversion of Series A Preferred Shares, multiplying the number of Series A
Preferred Shares so to be converted by $1.00 and dividing the result by the
conversion price of $1.00 per share or by the applicable conversion price as
last adjusted and in effect at the date any share or shares of such series of
Series A Preferred Shares are surrendered for conversion (such price, or such
price as last adjusted, being referred to herein as the "Series A Conversion
Price"), (ii) in the case of conversion of Series B Preferred Shares,
multiplying the number of Series B Preferred Shares so to be converted by
$1.263 and dividing the result by the conversion price of $1,263 per share or
by the applicable conversion price as last adjusted and in effect at the date
any share or shares of such series of Series B Preferred Shares are
surrendered for conversion (such price, or such price as last adjusted, being
referred to herein as the "Series B Conversion Price"), (iii) in the case of
conversion of Series C Preferred Shares, multiplying the number of Series C
Preferred Shares so to be converted by $1.50 and dividing the result by the
conversion price of $1.50 per share or by the applicable conversion price as
last adjusted and in effect at the date any share or shares of such series of
Series C Preferred Shares are surrendered for conversion (such price, or such
price as last adjusted, being referred to herein as the "Series C Conversion
Price"), (iv) in the case of conversion of Series D Preferred Shares,
multiplying the number of Series D Preferred Shares so to be converted by
$3.25 and dividing the result by the conversion price of $3.25 per share or
by the applicable conversion price as last adjusted and in effect at the date
any share or shares of such series of Series D Preferred Shares are
surrendered for conversion (such price, or such price as last adjusted, being
referred to herein as the "Series D Conversion Price"), and, (v) in the case
of conversion of Series E, Preferred Shares, multiplying the number of Series
E Preferred Shares so to be converted by $4.00 and dividing the result by the
conversion price of $4.00 per share or by the applicable conversion price as
last adjusted and in effect at the date any share or shares of such series of
Series E Preferred Shares are surrendered for conversion (such price, or such
price as last adjusted, being referred to herein as the "Series E Conversion
Price") and together with the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price and the Series D Conversion
Price, as the "Conversion Prices"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder
elects to convert a stated number of Convertible Preferred Shares into Common
Shares and by surrender of a certificate or certificates for the shares so to
be converted to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holder or holders of Convertible Preferred Shares at any time
during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Shares shall be issued.
3B. Promptly after the receipt of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
Convertible
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Preferred Shares to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct a certificate or certificates for the number
of whole Common Shares issuable upon the conversion of such Convertible
Preferred Shares. To the extent permitted by law, such conversion shall be
deemed to have been effected and any one or more of the Conversion Prices, as
required, shall be determined as of the close of business on which such
written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
Convertible Preferred Shares shall cease, and the person or persons in whose
name or names any certificate or certificates for Common Shares shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
3C. No fractional shares shall be issued upon conversion of the
Convertible Preferred Shares into Common Shares and no payment or adjustment
shall be made upon any conversion on account of any cash dividends on the
Common Shares issued upon such conversion. Except to the extent prohibited by
law and subject to the restrictions contained in the Credit Agreement and the
Purchase Agreement, at the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends accrued and unpaid on the shares
surrendered for conversion to the date upon which such conversion is deemed
to take place as provided in subparagraph 3B. In case the number of
Convertible Preferred Shares represented by the certificate or certificates
surrendered pursuant to subparagraph 3A exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and deliver
to the holder thereof, at the expense of the Corporation, a new certificate
or certificates for the number of Convertible Preferred Shares represented by
the certificate or certificates surrendered which are not to be converted. If
any fractional interest in a Common Share would, except for the provisions of
the first sentence of this subparagraph 3C, be deliverable upon any such
conversion, the Corporation, in lieu of delivering the fractional share
thereof, shall pay to the holder surrendering the Convertible Preferred
Shares for conversion an amount in cash equal to the current market price of
such fractional interest as determined in good faith by the Board of
Directors of the Corporation.
3D. Except (x) as provided in subparagraph 3F hereof or (y) in the
event of a dividend or distribution payable in equity securities of the
Corporation, if and whether the Corporation shall issue or sell, or is, in
accordance with subparagraphs 3D(1) through 3D(5), deemed to have issued or
sold, any of its Common Shares or securities convertible into or exercisable
for Common Shares, for a consideration per share (on a fully-diluted Common
Share basis) less than any one or more of the Conversion Prices in effect
immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, each such Conversion Price which exceeds such per share
consideration shall be reduced to the price (calculated to the nearest cent)
equal to the product determined by multiplying the Conversion Price in effect
immediately prior thereto by a fraction, of which the numerator shall be
(i)(A) the total number of Common Shares outstanding immediately prior to the
time of such issue or sale, plus (B) the number of
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additional Common Shares which the aggregate offering price of the total
number of Common Shares so issued or sold would purchase at the Conversion
Price in effect immediately prior to such issuance or sale, and (ii) of which
the denominator shall be (A) the total number of Common Shares outstanding
immediately prior to such issuance or sale, plus (B) the number of Common
Shares so issued or sold. For purposes of the foregoing sentence, the total
number of Common Shares outstanding shall be deemed to include the number of
Common Shares which would be outstanding if all outstanding securities
exercisable for or convertible into Common Shares (except options (other than
warrants (to purchase Common Shares) were so exercised or converted, and all
securities exercisable for or convertible into Common Shares (except options
(other than warrants (to purchase Common Shares) were so exercised or
converted, as applicable, and then converted or exercised, as applicable.
For purposes of this subparagraph 3D, the following subparagraphs 3D(1)
to 3D(5), shall also be applicable:
3D(1). In case at any time the Corporation shall in any manner
grant (whether directly or by assumption in a merger or otherwise) any rights
to subscribe for or to purchase, or any options for the purchase of, Common
Shares or any stock or securities convertible into or exchangeable for Common
Shares (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately exercisable, and
the price per share for which Common Shares are issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable
by the Corporation as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (ii)
the total maximum number of Common Shares issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than any one or
more of the conversion Prices in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of Common
Shares issuable upon the exercise of such Options shall be deemed to have
been issued for such price per share as of the date of granting of such
Options and thereafter shall be deemed to be outstanding. Except as otherwise
provided in subparagraph 3D(3), no adjustment of any of the Conversion Prices
shall be made upon the actual issue of such Common Shares or of such
Convertible Securities upon exercise of such Options or upon the actual issue
of such Common Shares upon conversion or exchange of such Convertible
Securities.
3D(2). In case the Corporation shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any Convertible
Securities,
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whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Shares are issuable
upon such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of Common
Shares issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than any one or more of the Conversion Prices in
effect immediately prior to the time of such issue or sale, then the total
maximum number of Common Shares issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided that
(a) except as otherwise provided in subparagraph 3D(3) below, no adjustment
of any of the Conversion Prices shall be made upon the actual issue of such
Common Shares upon conversion or exchange of such Convertible Securities, and
(b) if any such issue or sale of such Convertible Securities is made upon
exercise of any Option to purchase any such Convertible Securities for which
adjustments of any one or more of the Conversion Prices have been or are to
be made pursuant to other provisions of this subparagraph 3D, no further
adjustment of any such Conversion Price shall be made by reason of such issue
or sale.
3D(3). Upon the happening of any of the following events, namely,
if the purchase price provided for in any Option referred to in subparagraph
3D(1), the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 3D(1) or
3D(2), or the rate at which any Convertible Securities referred to in
subparagraph 3D(1) or 3D(2) are convertible into or exchangeable for Common
Shares shall change at any time (other than under or by reason of provisions
designed to protect against dilution), each of the Conversion Prices in
effect at the time of such event shall forthwith be readjusted to such
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold; and on the expiration of
any such Option or the termination of any such right to convert or exchange
such Conversion Securities, each of the Conversion Prices then in effect
hereunder shall, as required, forthwith be increased to the respective such
Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued, and the Common Shares issuable thereunder shall no longer be
deemed to be outstanding. If the purchase price provided for in any such Option
referred to in subparagraph 3D(1) or the rate at which any Convertible
Securities referred to in subparagraph 3D(1) or 3D(2) are convertible into or
exchangeable for Common Shares shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then, in case of the delivery of Common Shares upon the exercise of
any such Option, or upon conversion or exchange of any such Convertible
Securities, each of the
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Conversion Prices then in effect hereunder shall forthwith be adjusted to
such respective amount as would have been obtained had such Option or
Convertible Securities never been issued as to such Common Shares and had
adjustments been made upon the issuance of the Common Shares delivered as
aforesaid, but only if as a result of such adjustment any such Conversion
Price then in effect hereunder is hereby reduced.
3D(4). In case any Common Shares, Options or Convertible Securities
shall be issued or sold for cash, the consideration received therefor shall
be deemed to be the amount received by the Corporation therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions
paid or allowed by the Corporation in connection therewith. In case any
Common Shares, Options or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair market value
of such consideration as determined in good faith by the Board of Directors
of the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. The amount of consideration deemed to be received by
the Corporation pursuant to the foregoing provisions of this subparagraph
3D(4) upon any issuance and/or sale of Common Shares, Options or Convertible
Securities pursuant to an established compensation plan of the Corporation,
to directors, officers or employees of the Corporation in connection with
their employment shall be increased by the amount of any tax benefit realized
by the Corporation as a result of such issuance and/or sale, the amount of
such tax benefit being the amount by which the federal and/or state income or
other tax liability of the Corporation shall be reduced by reason of any
deduction or credit in respect of such issuance and/or sale. In case any
Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction
in which no specific consideration is allocated to such Options by the
parties thereto, the consideration deemed to have been received by the
Corporation for such Options shall be an amount (i) agreed to by the
Corporation, the holders of a majority of the Convertible Preferred Shares
then outstanding and the holders of a majority of the Common Shares then
outstanding or, (ii) in the absence of such agreement, by an independent firm
of investment bankers, appraisers or accountants selected by the Corporation
(and approved by the holders of a majority of the Common Shares then
outstanding and the holders of a majority of the Convertible Preferred Shares
then outstanding) or, (iii) in the absence of agreement as to the identity of
such independent firm, by three independent firms of investment bankers,
appraisers or accountants, (A) one of which shall be selected by the
Corporation (and approved by the holders of a majority of the Common Shares
then outstanding), (B) one by the holders of a majority of the Convertible
Preferred Shares then outstanding and (C) the third selected by the
investment bankers, appraisers or accountants selected by the Corporation and
such holders of a majority of the outstanding Convertible Preferred Shares
pursuant to parts (A) and (B) of this clause (iii), or (iv) in such other
manner as may be agreed between the Corporation and the holders of a majority
of the Convertible Preferred Shares outstanding (and approved by the holders
of a majority of the Common Shares then outstanding). The Corporation
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shall bear the costs associated with compensating the investment bankers,
appraisers and accountants described in the preceding sentence if the
determination of the value of the consideration deemed to have been received
by the Corporation for the Options is made pursuant to clause (ii) of the
preceding sentence, but if such determination is made pursuant to clause
(iii) of the preceding sentence, (x) the Corporation shall bear the costs
associated with compensating the investment bankers, appraisers or
accountants appointed pursuant to part (A) of such clause (iii), (y) the
holders of the then outstanding Convertible Preferred Shares (pro rata in
proportion to the number of Convertible Preferred Shares held by each such
holder) shall bear the costs associated with compensating the investment
bankers, appraisers or accountants appointed pursuant to part (B) of such
clause (iii), and (z) the Corporation shall bear one-half of the costs
associated with compensating the investment bankers, appraisers and
accountants appointed pursuant to part (C) of such clause (iii), and the
holders of the then outstanding Convertible Preferred Shares (pro rata in
proportion to the number of Preferred Shares held by each such holder) shall
bear the remaining one-half of such costs. For purposes of the foregoing
provisions of this subparagraph 3D(4), (i) holders of Common Shares
outstanding shall be deemed to include the holders of securities (except
Convertible Preferred Shares, securities exchangeable for or exercisable
into Convertible Preferred Shares, and options (other than warrants) to
purchase Common Shares) Convertible into or exercisable for Common Shares
("Common Convertible Securities"), (ii) the number of Common Shares deemed to
be held by the holders referred to in the immediately preceding clause (i) shall
be deemed to be equal to the number of Common Shares into which such Common
Convertible Securities could then be converted or for which such Common
Convertible Securities could then be exercised, (iii) the holders of
Convertible Preferred Shares outstanding shall be deemed to include the
holders of securities Convertible into or exercisable for Convertible
Preferred Shares ("Preferred Convertible Securities"), and (iv) the number of
Convertible Preferred Shares deemed to be held by the holders referred to in
the immediately preceding clause (iii) shall be deemed to be equal to the
number of Convertible Preferred Shares into which such Convertible Preferred
Convertible Securities could then be converted or for which such Preferred
Convertible Securities could then be exercised.
3D(5). The number of Common Shares outstanding at any given time
shall not include shares owned or held by or for the account of the
Corporation, and the disposition of any such shares shall be considered an
issue or sale of Common Shares for the purposes of this subparagraph 3D.
3E. In case the Corporation shall at any time subdivide its outstanding
Common Shares into a greater number of shares or make a dividend or
distribution payable in Common Shares, the Conversion Prices in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding Common Shares of the Corporation shall be
combined into a smaller number of shares, the Conversion Prices in effect
immediately prior to such combination shall be proportionately increased.
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3F. Anything herein to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of any of the Conversion Prices
in the case of the issuance of:
(i) up to an aggregate of 867,000 Common Shares, or options to
purchase the same, pursuant to stock options or purchase plans adopted
by the Corporation;
(ii) up to an aggregate of 205,000 Common Shares, or options to
purchase the same, for key employees of businesses acquired by the
Corporation;
(iii) the Common Shares or Preferred Shares upon exercise of any
presently outstanding warrant (or any Common Shares upon conversion of
Preferred Shares issued upon exercise of any presently outstanding
warrant), not including the warrants referred to in subparagraph (iv) of
this Section 3F, Common Shares upon conversion of presently outstanding
Preferred Shares;
(iv) warrants for Common Shares, and the Common Shares issued
upon exercise of such warrants, to ING, Electra, Nassau Capital
Partners L.P. and NAS Partners I, L.L.C.;
(v) up to an aggregate of 41,000 Common Shares, or options to
purchase the same, to directors of the Corporation; or
(vi) up to an aggregate of 820,000 Common Shares, or options to
purchase the same, in connection with any merger or acquisition to which
the Corporation or any subsidiary is a party.
3G. If any capital reorganization or reclassification of the capital
stock of the Corporation shall be effected in such a way that holders of
Common Shares shall be entitled to receive shares, securities or assets with
respect to or in exchange for Common Shares, then, as a condition of such
reorganization or reclassification, lawful and adequate provisions (in form
satisfactory to the holders of at least 66-2/3% of the outstanding
Convertible Preferred Shares voting together as a class) shall be made
whereby each holder of Convertible Preferred Shares shall thereafter have the
right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the Common Shares of the Corporation immediately
theretofore receivable upon the conversion of Convertible Preferred Shares,
such shares, securities or assets as may be issued or payable with respect to
or in exchange for a number of outstanding Common Shares equal to the number
of such shares immediately theretofore so receivable upon such conversion,
and in any such case appropriate provision shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Conversion
Prices) shall thereafter be applicable, as nearly as may be in relation to
any shares, securities or assets thereafter deliverable upon the exercise of
such conversion rights (including, as required, an
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immediate adjustment, by reason of such reorganization or reclassification,
of any one or more, of the Conversion Prices to the value for the Common
Shares reflected by the terms of such reorganization or reclassification if
the value so reflected is less than any Conversion Price in effect
immediately prior to such reorganization or reclassification). In the event
of a merger or consolidation of the Corporation as a result of which a
greater or lesser number of Common Shares of the surviving corporation are
issuable to holders of Common Shares of the Corporation outstanding
immediately prior to such merger or consolidation, each of the Conversion
Prices in effect immediately prior to such merger or consolidation shall, as
required, be adjusted in the same manner as though there were subdivision or
combination of the outstanding Common Shares of the Corporation. The
Corporation will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (other than the
Corporation) resulting from such consolidation or merger or if the
corporation purchasing such assets shall assume by written instrument (in
form reasonably satisfactory to the holders of at least 66-2/3% of the
Convertible Preferred Shares at the time outstanding voting together as a
class) executed and mailed or delivered to each holder of Convertible
Preferred Shares at the last address of such holder appearing on the books of
the Corporation, the obligation to deliver to such holder such shares,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
3H. Upon any adjustment of any one or more of the Conversion Prices,
then and in each such case the Corporation shall give written notice thereof,
by first class mail, postage prepaid, addressed to each holder of Convertible
Preferred Shares at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
3I. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Shares payable in cash or shares or make any other distribution to the
holder of its Common Shares;
(2) the Corporation shall offer for subscription PRO RATA to the
holders of its Common Shares any additional shares of any class or other
rights;
(3) there shall be any capital reorganization or reclassification
or merger of the Corporation with, or a sale of all or substantially all
of its assets to, another corporation; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
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then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any Convertible
Preferred Shares at the address of such holder as shown on the books of the
Corporation, at least 20 days' prior written notice of the date (a) on which
the books of the Corporation shall close or a record shall be taken for the
purpose of determining the holders entitled to receive such dividend,
distribution or subscription rights or (b) for determining rights to vote in
respect of any reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which the
holders of Common Shares shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Shares shall be entitled to exchange their Common
Shares for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
3J. The Corporation will at all times reserve and keep available out
of its authorized Common Shares or its treasury shares, solely for the
purpose of issuance upon conversion of Convertible Preferred Shares as herein
provided, such number of Common Shares as shall then be issuable upon the
conversion of all outstanding Convertible Preferred Shares (including shares
issuable in respect of any cumulated but unpaid dividends on the convertible
Preferred Shares). The Corporation covenants that all Common Shares which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all liens and charges with respect to the issue
thereof. The Corporation will not take any action which results in any
adjustment of any of the Conversion Prices if the total number of Common
Shares issued and issuable after such action upon conversion of the
Convertible Preferred Shares would exceed the total number of Common Shares
then authorized by this Certificate of Incorporation.
3K. The issuance of certificates for shares of Common Shares upon
conversion of the Convertible Preferred Shares shall be made without charge
to the holders thereof for any issuance tax in respect thereof, provided that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Convertible
Preferred Shares which is being converted.
3L. The Corporation will at no time close its transfer books against
the transfer of any Convertible Preferred Shares or any shares of Common
Shares issued or issuable upon the conversion of any shares of Convertible
Preferred Shares in any manner which interfere with the timely conversion of
such Convertible Preferred Shares.
3M. The adjustments to the Conversion Prices which are referred to
above in this paragraph 3 shall be effective as to all Convertible Preferred
Shares, whether or not such Convertible Preferred Shares are issued and
outstanding at the time of occurrence of the events which trigger the
adjustment in the Conversion Prices.
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<PAGE>
3. Except as otherwise provided by law and this Certificate of
Incorporation, the holders of Common Shares and Convertible Preferred Shares
shall vote together as a class (together with holders of Convertible
Preferred Shares or any other series entitled to vote) on all matters to be
voted on by the shareholders of the Corporation on the basis that each holder
of Convertible Preferred Shares shall be entitled to vote for each share of
Common Shares which would be issuable to such holder upon the conversion of
all the Convertible Preferred Shares so held on the record date for the
determination of shareholders entitled to vote.
4. Subject to the provisions contained in that certain Fourth Amended
and Restated Shareholders Agreement dated as of September 18, 1996 among DAH
Ohio and the other parties named therein, as it may be amended from time to
time, which will be adopted by the Corporation, at any time when shares of
Convertible Preferred Shares are outstanding, except where the vote of the
holders of a greater number of shares of the Corporation is required by law
or by the Certificate of Incorporation and in addition to any other vote
required by law.
5A. The Corporation will not create or authorize the creation of any
additional class of shares unless the same ranks junior to the Series D
Preferred Shares and the Series E Preferred Shares as to the distribution of
assets on the liquidation, dissolution or winding up of the Corporation, or
increase the authorized amount of the Series D Preferred Shares or the Series
E Preferred Shares or increase the authorized amount of any additional class
of shares of stock unless the same ranks junior to the Series D Preferred
Shares and the Series E Preferred Shares as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into Series D Preferred
Shares or Series E Preferred Shares or into shares of any other class of
shares unless the same ranks junior to the Series D Preferred Shares and the
Series E Preferred Shares as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, whether any such
creation of authorization or increase shall be by means of amendment of this
Certificate of Incorporation or by merger, consolidation or otherwise,
without the prior consent of the holders of a majority of the outstanding
Series D Preferred Shares, voting as a class, and the holders of a majority
of the outstanding Series E Preferred Shares, voting as a class, given in
person or by proxy at an annual or special meeting called for that purpose,
at which meeting the holders of the shares of Series D Preferred Shares,
Series E Preferred Shares shall vote together as a separate class.
5B. The Corporation will not create or authorize the creation of any
additional class of shares unless the same ranks junior to the Series A
Preferred Shares, Series B Preferred Shares and Series C Preferred Shares as
to the distribution of assets on the liquidation, dissolution or winding up
of the Corporation, or increase the authorized amount of the Series A
Preferred Shares, Series B Preferred Shares or Series C Preferred Shares or
increase the authorized amount of any additional class of shares of stock
unless the same ranks junior to the Series A Preferred Shares, Series B
Preferred
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<PAGE>
Shares and Series C Preferred Shares as to the distribution of assets of the
liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into Series A Preferred
Shares, Series B Preferred Shares, Series C Preferred Shares or into any
other class of shares unless the same ranks junior to the Series A Preferred
Shares, Series B Preferred Shares and Series C Preferred Shares as to the
distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation or authorization or increase shall be
by means of amendment of the Certificate of Incorporation or by merger,
consolidation or otherwise, without the prior consent of the holders of a
majority of the outstanding Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares, voting as a class, given in person or
proxy, at an annual or special meeting called for that purpose, at which
meeting the holders of the shares of Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares shall vote together as a
separate class.
5C. The Corporation will not merge or consolidate with or into any
other corporation or sell (except in the ordinary course of business) assets
representing more than 10% of the Corporation's total assets, excluding
inventory, without the prior consent of the holders of a majority of the
outstanding Convertible Preferred Shares voting as a class, given in person
or by proxy, at a special meeting called for that purpose, at which meeting
the holders of Convertible Preferred Shares shall vote together as a separate
class; provided, however, that notwithstanding any provision of this
paragraph 5C, to the contrary, the provisions of this paragraph 5C shall not
apply with respect to the exercise (i) by ING, of its rights under any of the
Security Documents (as defined in the Credit Agreement, as it may be amended
from time to time), or (ii) by Electra of its rights under the Purchase
Agreement or any of the Related Agreements (as defined in the Purchase
Agreement).
5D. The Corporation will not amend, alter or repeal its Certificate of
Incorporation or By-Laws in any manner so as to adversely affect the
respective relative rights and preferences of the Convertible Preferred
Shares or the holders thereof, without the prior consent of the holders of a
majority of the outstanding shares of the Series of Convertible Preferred
Shares whose rights or preferences would be adversely affected thereby, given
in person or by proxy, at an annual or special meeting called for that
purpose, at which meeting the holders of the shares of the Series of
Convertible Preferred Shares whose rights or preferences would be adversely
affected thereby voting together as a separate class.
5. All cross-references in each subdivision of this Article FIFTH
shall refer to other subdivisions of this Article FIFTH.
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<PAGE>
SIXTH: The following is a statement of the designations, powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of the Common Shares:
1. The holders of Common Shares shall be entitled to receive such
dividends as from time to time may be declared by the Board of Directors of
the Corporation subject to the provisions of subdivision 1 of Article FIFTH
with respect to the rights of holders of the Convertible Preferred Shares.
2. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to holders of the Convertible Preferred Shares of the full amounts to
which they shall respectively be entitled as stated and expressed herein or
as may be stated and expressed pursuant thereto, the holders of Common Shares
shall be entitled to the exclusion of the holders of the Convertible
Preferred Shares to share ratably according to the number of Common Shares
held by them in all remaining assets of the Corporation available for
distribution to its stockholders.
3. All of the Common Shares shall be identical with each other in every
respect. Each Common Share shall entitled the holder thereof to one vote for
each share upon all matters upon which shareholders have the right to vote.
The Corporation may issue from time to time warrants to acquire Common Shares
which permit the holders thereof to vote together with the holders of Common
Shares a number of votes equal to the number of shares of Common Shares which
may be acquired upon exercise of such warrants.
SEVENTH: The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
Linda Criblez 2121 Avenue of the Stars
18th Floor
Los Angeles, CA 90067
EIGHTH:
1. The directors of the Corporation shall have no personal liability
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of a director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which a director derived any
improper personal benefit. If the General Corporation Law of Delaware is so
amended after the filing of this Certificate of Incorporation to further
eliminate or limit the personal liability of directors, then the personal
liability of the directors shall be
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<PAGE>
eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended.
2. The Corporation shall indemnify, to accordance with and to the
fullest extent now or hereafter permitted by law, any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal administrative
or investigative, including without limitation, an action by or in the right
of the Corporation, by reason of his acting as a director or executive
officer (within the meaning of Rule 3b-7 promulgated under the Securities
Exchange Act of 1934, as amended) of the Corporation (and the Corporation, in
the discretion of the Board of Directors, may so indemnify a person by reason
of the fact that he is or was an other officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation in any
other capacity for or on behalf of the Corporation) against any liability or
expense actually and reasonably incurred by each person in respect thereof;
provided, however, the Corporation shall be required to indemnify an officer
or director in connection with an action, suit or proceeding if such action,
suit or proceeding was authorized by the Board of Directors of the
Corporation. Such indemnification is not exclusive of any other right to
indemnification provided by law or otherwise. The right to indemnification
conferred by this Section 2 shall be deemed to be a contract between the
Corporation and each person referred to herein.
3. No amendment to or repeal of those provisions shall apply to or have
any effect on the liability or alleged liability of any person for or with
respect to any acts or omissions of such person occurring prior to such
amendments.
NINTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make adopt, alter,
amend or repeal the By-laws of the Corporation. Subject to any provisions in
the By-laws providing indemnification to officers and directors of the
Corporation, the By-laws of the Corporation may be altered or amended or new
By-laws adopted by the affirmative vote of the holders of at least 66 1/3% of
the outstanding shares of capital stock of the Corporation (including any
warrants with voting rights) entitled to vote (voting together as a single
class).
TENTH: Anything to the contrary appearing in this Certificate of
Incorporation notwithstanding:
1. The business and affairs of the Corporation shall be managed by
a Board of Directors consisting of not less than five nor more than nine
persons. The exact number of directors within the limitations specified in the
preceding sentence shall be fixed from time to time by a resolution adopted
by the affirmative vote of the Board of Directors or by a By-law duly adopted
by the Board of Directors. No decrease in the number of directors so fixed
shall shorten the current term of any director then holding office, and the
number of directors provided for in the terms of any series of Preferred
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<PAGE>
Stock shall not be changed as a result of any change of directors pursuant to
this paragraph 1.
2. The directors of the Corporation shall be divided into three
classes, as nearly equal in number as reasonably possible, with the directors
in each class to hold office until their successors are elected and
qualified. At each annual meeting of stockholders of the Corporation, the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a three year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly equal as
possible, and any additional directors of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year
is which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Notwithstanding the
foregoing, whenever the holders of any one or more classes or series of
Preferred Shares issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies
and other features of such directorships shall be governed by the terms of
this Certificate of Incorporation or the resolution or resolutions adopted by
the Board of Directors pursuant to Article FOURTH hereof, and such directors
so elected shall not be divided into classes pursuant to this Paragraph 1
unless expressly provided by such terms.
3. Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
4. Subject to the rights, if any, of the holders of shares of Preferred
Shares then outstanding, any or all of the directors of the Corporation may
be removed from office by the stockholders at any annual or special meeting of
stockholders of the Corporation, the notice of which shall state that the
removal of a director or directors is among the purposes of the meeting, but
only for cause, by the affirmative vote of at least 66-2/3% of the
outstanding shares of the Corporation entitled to vote (including any
warrants with voting rights).
5. Newly created directorships resulting from any increase in the
number of directors or any vacancy on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
solely by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum, or by a sole remaining director.
Any director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of directors in which
the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
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<PAGE>
6. From and after such time as the Corporation shall have any class of
equity securities registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, or any successor thereto, any action
required or permitted to be taken at any annual or special meeting of
stockholders may be taken only upon the vote of the stockholders at an annual
or special meeting duly called and may not be taken by written consent of the
stockholders.
7. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board of Directors, the Chief Executive Officer or the
President of the Corporation. Special meetings of the stockholders of the
Corporation may not be called by any other person or persons.
8. Except as provided in Section 203 of the General Corporation Law of
Delaware, any merger of the Corporation with or into another corporation
(other than a corporation of which the Corporation owns at least 90% of the
outstanding shares of each class) or any sale by the Corporation, directly or
indirectly, of all or substantially all of its assets which has not been
approved by at least 66 2/3% of the members of the Board of Directors shall
require the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of capital stock of the Corporation entitled to vote
(including any warrants with voting rights). Except as provided in Section
203 of the General Corporation Law of Delaware, any such merger or sale of
all or substantially all the assets of the Corporation which has been so
approved by at least two-thirds of the members of the Board of Directors
shall require the affirmative vote of at least a majority of the outstanding
shares of capital stock of the Corporation entitled to vote (including any
warrants with voting rights).
ELEVENTH: The affirmative vote of at least 66-2/3% of the outstanding
shares of capital stock of the Corporation entitled to vote (including any
warrants with voting rights) shall be required to amend or repeal any
provision of Articles EIGHTH, NINTH, TENTH and ELEVENTH hereof or to adopt any
provision inconsistent therewith.
TWELFTH: The Corporation reserves the rights to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
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<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a Corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and
certifying that this is my act and deed and the facts herein stated
are true, and accordingly have hereunto set my hand as of January 8, 1997.
/s/ Linda Criblez
-------------------------------
Linda Criblez
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<PAGE>
Exhibit 3.2
BYLAWS
OF
DAHX, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICERS
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent or in
such other city within the State of Delaware as the Board of Directors may
select, from time to time.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by
the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware,as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of
Directors, or, if not so designated, then at the office of the corporation
required to be maintained pursuant to Section 2 hereof.
1.
<PAGE>
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not later than the close of business on the sixtieth (60th) day nor earlier
than the close of business on the ninetieth (9Oth) day prior to the first
anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER, that
in the event that no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than thirty (30) days from the
first anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth (60th) day
prior to such annual meeting or, in the event public announcement of the date
of such annual meeting is first made by the corporation fewer than seventy
(70) days prior to the date of such annual meeting, the close of business on
the tenth (lOth) day following the day on which public announcement of the
date of such meeting is first made by the corporation. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes
to bring before the annual meeting: (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the " 1934 Act"), in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's
meeting, stockholders must provide notice as required by the regulations
promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this paragraph (b). The chairman
of the annual meeting shall, if the facts warrant, determine and declare at
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph (b), and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
2.
<PAGE>
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled
to vote in the election of directors at the meeting who complies with the
notice procedures set forth in this paragraph (c). Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the corporation
in accordance with the provisions of paragraph (b) of this Section 5. Such
stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person, (B)
the principal occupation or employment of such person, (C) the class and
number of shares of the corporation which are beneficially owned by such
person, (D) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written
consent to being named in the proxy statement, if any, as a nominee and to
serving as a director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 5. At the request of the Board of Directors, any person
nominated by a stockholder for election as a director shall confirm in
writing to the Secretary of the corporation the accuracy of the information
set forth in the stockholder's notice of nomination which pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should
so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (iv) by the President.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
3.
<PAGE>
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote,
in accordance with the provisions of Section 7 of these Bylaws. If the notice
is not given within sixty (60) days after the receipt of the request, the
person or persons requesting the meeting may set the time and place of the
meeting and give the notice. Nothing contained in this paragraph (b) shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by
any stockholder by his attendance thereat in person or by proxy, except when
the stockholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these
Bylaws, the presence, in person or by proxy duly authorized, of the holders
of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all action taken by the holders
of a majority of the vote cast, excluding abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
provided, however, that directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. Where a separate vote by a
class or classes or series is required, except where otherwise provided by
the statute or by the Certificate of Incorporation or these Bylaws, a
majority of the outstanding shares of such class or classes or series,
present in person or represented by proxy, shall constitute a quorum entitled
to take action with respect to that vote on that matter and, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the
4.
<PAGE>
votes cast, including abstentions, by the holders of shares of such class or
classes or senes shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the
shares casting votes, excluding abstentions. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders
entitled to vote at any meeting of the stockholders, except as otherwise
provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by
an agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for
a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it
is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one
(1) votes, the act of the majority so voting binds all; (c) if more than one
(1) votes, but the vote is evenly split on any particular matter, each
faction may vote the securities in question proportionally, or may apply to
the Delaware Court of Chancery for relief as provided in the General
Corporation Law of Delaware, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) shall be a majority
or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list
of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
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produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting
of the stockholders, or any action which may be taken at any annual or
special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty (60)
days of the earliest dated consent delivered to the corporation in the manner
herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to
its registered office in the State of Delaware, its principal place of
business or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made
to a corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken from and after such time as the corporation shall have a class
of equity security registered under Section 12(b) or 12(g) of the 1934 Act.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his absence,
an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary,
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appropnate or convenient. Subject to such rules and regulations of the Board
of Directors if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without
limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders
of record of the corporation and their duly authorized and constituted
proxies and such other persons as the chairman shall permit, restrictions on
entry to the meeting after the time fixed for the commencement thereof,
limitations on the time allotted to questions or comments by participants and
regulation of the opening and closing of the polls for balloting on matters
which are to be voted on by ballot. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be between five and nine. The exact number of
directors within the limitations specified in the preceding sentence shall be
fixed from time to time by a resolution adopted by the affirmative vote of
the Board of Directors or by a By-Law duly adopted by the Board of Directors.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether
it will be effective at a particular time, upon receipt by the Secretary or
at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors.
SECTION 18. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall
be held immediately before or after the annual meeting of stockholders and at
the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may
lawfully come before it.
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(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolution of the Board of
Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent
in writing to each director by first class mail, charges prepaid, at least
three (3) days before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived
by any director by attendance thereat, except when the director attends the
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records
or made a part of the minutes of the meeting.
SECTION 19. QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; PROVIDED,
HOWEVER, at any meeting whether a quorum be present or otherwise, a majority
of the directors present may adjourn from time to time until the time fixed
for the next regular meeting of the Board of Directors, without notice other
than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative
vote of a majority of the
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directors present unless a different vote be required by law, the
Certificate of Incorporation or these Bylaws.
SECTION 20. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
SECTION 21. FEES, AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board of Directors and at any meeting
of a committee of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving
compensation therefor.
SECTION 22. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of two (2) or more members of the Board of Directors.
The Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, including without limitation the
power or authority to declare a dividend, to authorize the issuance of stock
and to adopt a certificate of ownership and merger, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but
no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, from time to time appoint such
other committees as may be permitted by law. Such other committees appointed
by the Board of Directors shall consist of two (2) or more members of the
Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such
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committees, but in no event shall such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death
or voluntary resignation from the committee or from the Board of Directors.
The Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members
of the committee. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 22 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 23. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed
or is absent, the Chief Executive Officer, or if the Chief Executive Officer
is not present, the President, or if the President is absent, the most senior
Vice President, or, in the absence of any such officer, a chairman of the
meeting chosen by a majority of the directors present, shall preside over the
meeting. The Secretary, or in his absence, an Assistant Secretary directed
to do so by the President, shall act as secretary of the meeting.
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ARTICLE V
OFFICERS
SECTION 24. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary and the Chief Financial Officer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The Board of Directors may also appoint a Treasurer, a Controller,
one or more Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents with such powers and duties as
it shall deem necessary. The Board of Directors may assign such additional
titles to one or more of the officers as it shall deem appropriate. Any one
person may hold any number of offices of the corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors.
SECTION 25. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors shall designate from time to time. If there is no President,
then the Chairman of the Board of Directors shall also serve as the Chief
Executive Officer of the corporation and shall have the powers and duties
prescribed in paragraph (c) of this Section 25.
(c) DUTIES OF CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors, unless the Chairman of the Board of Directors has
been appointed and is present. The Chief Executive Officer shall, subject to
the control of the Board of Directors, have general supervision, direction
and control of the business and officers of the corporation. The Chief
Executive Officer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(d) DUTIES OF PRESIDENT. The President may assume and perform the
duties of Chief Executive Officer in the absence or disability of the Chief
Executive Officer or whenever the office of Chief Executive Officer is
vacant. The President shall perform such duties and such other powers as the
Board of Directors or the Chief Executive Officer shall designate from time
to time.
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(e) DUTIES OF VICE PRESIDENT. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the President shall designate from
time to time.
(f) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts
and proceedings thereof in the minute book of the corporation. The Secretary
shall give notice in conformity with these Bylaws of all meetings of the
stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these Bylaws and other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors shall designate from time to time. The Chief Executive Officer
or the President may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and
each Assistant Secretary shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors, the Chief Executive Officer or the President shall
designate from time to time.
(g) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant
Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or
disability of the Chief Financial Officer, and each Treasurer and Assistant
Treasurer and each Controller and Assistant Controller shall perform other
duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors, the Chief
Executive Officer or the President shall designate from time to time.
SECTION 26. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 27. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chief Executive Officer or to
the President or to the Secretary. Any such resignation shall be effective
when received by the person or persons to whom such notice is given, unless a
later time is specified therein, in which event the resignation shall become
effective at such later time. Unless otherwise specified in such notice, the
acceptance of any such resignation shall not be necessary to make it
effective. Any resignation shall be without prejudice to the rights, if any,
of the corporation under any contract with the resigning officer.
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SECTION 28. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 29. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory
officer or officers, or other person or persons, to execute on behalf of the
corporation any corporate instrument or document, or to sign on behalf of the
corporation the corporate name without limitation, or to enter into contracts
on behalf of the corporation, except where otherwise provided by law or these
Bylaws, and such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or
endorsed by the Chairman of the Board of Directors, the Chief Executive
Officer or the President or any Vice President, and by the Secretary or
Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
SECTION 30. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 31. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Treasurer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares
owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in full
or in summary, all of the powers, designations, preferences, and rights, and
the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
SECTION 32. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates,
the owner of such lost, stolen, or destroyed certificate or certificates,
or his legal representative, to advertise the same in such manner as it shall
require or to give the corporation a surety bond in such form and amount as
it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost,
stolen, or destroyed.
SECTION 33. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by transfer
agent duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
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(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any
manner not prohibited by the General Corporation Law of Delaware.
SECTION 34. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting
is held. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights for the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 35. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 36. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 31), may be signed by the Chairman of the Board of
Directors, Chief Executive Officer, the President or any Vice President, or
such other person as may be authorized by the Board of Directors, and, if
required, the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and
15.
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attested by the signature of the Secretary or an Assistant Secretary, or the
Chief Financial Officer or Treasurer or an Assistant Treasurer; PROVIDED,
HOWEVER, that where any such bond, debenture or other corporate security
shall be authenticated by the manual signature, or where permissible
facsimile signature, of a trustee under an indenture pursuant to which such
bond, debenture or other corporate security shall be issued, the signatures
of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
corporation or such other person as may be authorized by the Board of
Directors, or bear imprinted thereon the facsimile signature of such person.
In case any officer who shall have signed or attested any bond, debenture or
other corporate security, or whose facsimile signature shall appear thereon
or on any such interest coupon, shall have ceased to be such officer before
the bond, debenture or other corporate security so signed or attested shall
have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
FISCAL YEAR
SECTION 37. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE X
INDEMNIFICATION
SECTION 38. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify, in accordance with and to the fullest extent now or hereafter
permitted by law, any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
including without limitation, an action by or in the right of the
corporation, by reason of his acting as a director or executive officer
(within the meaning of Rule 3b-7 promulgated under the Securities Exchange
Act of 1934, as amended) of the corporation any liability or expense actually
and reasonably incurred by such person in respect thereof; provided, however,
the corporation shall be required to indemnify an executive officer or
director in connection with an action, suit or proceeding if such action,
suit or proceeding was authorized by the Board of Directors of the
corporation. Such indemnification is not exclusive of any other right to
indemnification provided by law or otherwise.
16.
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(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents
as set forth in the Delaware General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or executive officer, of the corporation, or is or was serving at
the request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor,
all expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person
is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that
such executive officer is or was a director of the corporation in which event
this paragraph shall not apply) in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, if a determination is
reasonably and promptly made (i) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to the proceeding,
or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. In
connection with any claim by an executive officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled
to raise a defense as to any such action clear and convincing evidence that
such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted
17.
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without reasonable cause to believe that his conduct was lawful. Neither the
failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at
the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer
to the full extent not prohibited by any applicable portion of this Bylaw
that shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
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(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this Bylaw.
ARTICLE XI
NOTICES
SECTION 39. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given
in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
19.
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(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall
have filed in writing with the Secretary, or, in the absence of such filing,
to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the
name and address or the names and addresses of the stockholder or
stockholders, or director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and
all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other
or others. ,
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in
any manner by the failure of such stockholder or such director to receive
such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such
person. Any action or meeting which shall be taken or held without notice to
any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to
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such person during the period between such two consecutive annual meetings,
or (ii) all, and at least two, payments (if sent by first class mail) of
dividends or interest on securities during a twelve-month period, have been
mailed addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XII
AMENDMENTS
SECTION 40. AMENDMENTS. Subject to paragraph (h) of Section 38 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of capital stock of the corporation (including any
warrants with voting rights) entitled to vote (voting together as a single
class). The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
ARTICLE XII
LOANS TO OFFICERS
SECTION 41. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever,
in the judgment of the Board of Directors, such loan, guarantee or assistance
may reasonably be expected to benefit the corporation. The loan, guarantee or
other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing
in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
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EXHIBIT 10.10
FOURTH AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS FOURTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") dated as of September 18, 1996, is made by and among DeCrane
Aircraft Holdings, Inc., an Ohio corporation (the "Company"), and the several
parties named in Schedule I hereto (the "Shareholders").
PRELIMINARY STATEMENTS:
A. The Shareholders hold the amounts of Common Shares, without par value
("Common Shares"), Warrants to purchase Common Shares ("Common Warrants"),
Series A Convertible Preferred Shares, without par value ("Series A Shares"),
Series B Convertible Preferred Shares, without par value ("Series B Shares"),
Warrants to purchase Series B Shares (the "Series B Warrants"), Series C
Convertible Preferred Shares, without par value ("Series C Shares"), Series D
Convertible Preferred Shares, without par value (the "Series D Shares"), Series
E Convertible Preferred Shares, without par value (the "Series E Shares") and
the other securities set forth opposite their respective names on Schedule I
hereto (the Series A Shares, Series B Shares, Series C Shares, Series D Shares
and Series E Shares, collectively the "Preferred Stock") (the Common Warrants
and Series B Warrants, collectively the "Warrants").
B. The Company and certain of the parties hereto executed that certain
Amended and Restated Registration Rights Agreement dated as of October 15, 1991,
as amended (the "Amended Registration Rights Agreement"), that certain Second
Amended and Restated Registration Rights Agreement dated as of November 2, 1994
(the "Second Amended Registration Rights Agreement"), and that certain Third
Amended and Restated Registration Rights Agreement dated as of February 20, 1996
(the "Third Amended and Restated Registration Rights Agreement"), governing,
among other things, certain matters with respect to the registration of the
shares of capital stock of the Company.
C. The Company and the parties hereto desire to amend and restate the
Third Amended and Restated Registration Rights Agreement in its entirety by the
execution of this Agreement.
AGREEMENT:
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following respective meanings:
"ADDITIONAL RESTRICTED SECURITIES" shall mean, the Common Warrants and
shares of Common Stock now held or hereafter acquired by Internationale
Nederlanden (U.S.)
<PAGE>
2
Capital Corporation, a Delaware corporation ("ING"), and by The Provident
Bank, a banking association organized under the laws of the State of Ohio
("Provident"), and ING's and Provident's successors and assigns.
"COMMISSION" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Common Shares as constituted as of the
date of this Agreement, and Common Shares issuable upon exercise of the
Common Warrants.
"CONVERSION SHARES" shall mean shares of Common Stock issued upon
conversion of the Preferred Stock and Common Stock issued upon conversion
of the Series B Shares issuable upon exercise of the Series B Warrants.
"ELECTRA RESTRICTED SECURITIES" shall mean, collectively, Common
Shares, Common Warrants, Series B Warrants and Preferred Stock now held or
hereafter acquired by Electra Investment Trust PLC, a corporation organized
under the laws of the United Kingdom ("EIT") and Electra Associates, Inc.
("Electra") and EIT's and Electra's successors and assigns.
"INITIAL PUBLIC OFFERING" shall mean the closing of the initial
underwritten public offering for Common Shares of the Company pursuant to a
registration statement under the Securities Act.
"NASSAU RESTRICTED SECURITIES" shall mean, collectively, Common
Shares, Common Warrants, Series D Shares and Series E Shares now held or
hereafter acquired by Nassau Capital Partners L.P., a Delaware limited
partnership ("Nassau Capital") and NAS Partners I L.L.C., a Delaware
limited liability company ("NAS") and Nassau Capital's and NAS's successors
and assigns.
"PRIMARY RESTRICTED STOCK" shall mean, collectively, the Preferred
Stock, the Common Stock and those Common Warrants which are not Electra
Restricted Securities, Nassau Restricted Securities or Additional
Restricted Securities. For purposes hereof, "Preferred Stock" also shall
include the Series B Warrants and the Series B Shares issuable upon
exercise of the Series B Warrants.
"REGISTRATION EXPENSES" shall mean the expenses so described in
Section 8 hereof.
"RESTRICTED STOCK" shall mean, collectively, the Electra Restricted
Securities, Nassau Restricted Securities, the Primary Restricted Stock, the
Additional Restricted Securities and all Common Shares issuable upon
exercise of
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3
options to purchase the same granted hereafter to R. Jack DeCrane.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase
Agreement of even date herewith among the Company, Nassau Capital, NAS and
EIT.
"SELLING EXPENSES" shall mean the expenses so described in Section 8
hereof.
2. RESTRICTIVE LEGEND. Each instrument representing the Restricted
Stock, except as provided in Section 3 hereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
3. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
any Restricted Stock (other than under the circumstances described in Section 4,
5 or 6 hereof), the holder thereof shall give written notice to the Company of
its intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if requested by the Company, shall be
accompanied by an opinion of counsel reasonably satisfactory to the Company to
the effect that the proposed transfer of the Restricted Stock, as the case may
be, may be effected without registration under the Securities Act. In the event
that (but only in the event that) the holder of such Restricted Stock gives such
written notice and provides such opinion, if requested by the Company, the
holder of such Restricted Stock shall be entitled to transfer such Restricted
Stock in accordance with the terms of its notice, PROVIDED, HOWEVER, that no
such opinion or documentation shall be required if the notice pertains to
distribution by any holder pursuant to subpart (b) or (c) of Section 2 of that
certain Fourth Amended and Restated Shareholders Agreement of even date herewith
between the parties hereto (the "Shareholders Agreement"). Each instrument for
Restricted Stock transferred as above provided shall bear the legend set forth
in Section 2, except that such instrument shall not bear such legend if (i) such
transfer is in accordance with the provisions of Rule 144 (or any other rule
permitting public sale without registration under the Securities Act) or (ii)
the opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an affiliate of the
Company) would be entitled to
<PAGE>
4
transfer such securities in a public sale without registration under the
Securities Act.
The foregoing restrictions on transferability of Restricted Stock
shall terminate as to any particular shares of Restricted Stock when such shares
shall have been effectively registered under the Securities Act and sold or
otherwise disposed of in accordance with the intended method of disposition by
the seller or sellers thereof set forth in the registration statement concerning
such shares.
4. REQUIRED REGISTRATION.
(a) At any time, (i) the holders of Electra Restricted Securities
constituting at least a majority of the total Electra Restricted Securities
outstanding at such time (treating for the purpose of such computation (A) the
holders of Preferred Stock as the holders of the Conversion Shares then issuable
upon conversion of such Preferred Stock, (B) the holders of Common Warrants if
then issued and outstanding, as the holders of the shares of Common Stock
issuable upon exercise of the Warrant, and (C) the holders of Series B Warrants
as the holders of the shares of Common Stock then issuable upon exercise of the
Series B Warrant and conversion of the Series B Shares issuable thereby), or
(ii) the holders of Nassau Restricted Securities constituting at least a
majority of the total Nassau Restricted Securities outstanding at such time
(treating for the purpose of such computation (A) the holders of Series D Shares
as the holders of the Conversion Shares then issuable upon conversion of such
Series D Shares, (B) the holders of Series E Shares as the holders of the
Conversion Shares then issuable upon conversion of such Series E Shares and (C)
the holders of Common Warrants if then issued and outstanding, as the holders of
the shares of Common Stock issuable upon exercise of the Warrant), or (iii) the
holders of Primary Restricted Stock constituting at least a majority of the
total Primary Restricted Stock outstanding at such time (treating for the
purpose of such computation (A) the holders of Preferred Stock as the holders of
the Conversion Shares then issuable upon conversion of such Preferred Stock, (B)
the holders of Common Warrants if then issued and outstanding, as the holders of
the shares of Common Stock issuable upon exercise of the Warrant, and (C) the
holders of Series B Warrants as the holders of the shares of Common Stock then
issuable upon exercise of the Series B Warrant and conversion of the Series B
Shares issuable thereby) may request the Company to register under the
Securities Act all or any portion of the Nassau Restricted Securities, Electra
Restricted Securities or Primary Restricted Stock, as the case may be, held by
such requesting holder or holders for sale in the manner specified in such
notice, PROVIDED, HOWEVER, that the only securities which the Company shall be
required to register pursuant hereto shall be shares of Common Stock, PROVIDED,
FURTHER, HOWEVER, that, in any underwritten public offering contemplated by
Section 4, 5 or 6 hereof, other holders of Preferred Stock or Warrants shall be
<PAGE>
5
entitled to sell such Preferred Stock or Warrants to the underwriters for
conversion or exchange and the sale of the shares of Common Stock issued upon
such conversion; PROVIDED further, HOWEVER, that if the Warrants are to be sold
to the underwriters, there shall be deducted from the proceeds due to the
selling holder the aggregate exercise price required to be paid by such holder
upon exercise of the Warrants.
(b) Promptly following receipt of any notice under this Section 4,
the Company shall immediately notify (i) any holders of Nassau Restricted
Securities, Electra Restricted Securities or Primary Restricted Stock from whom
notice has not been received and (ii) any other holders of Restricted Stock, and
shall use its best efforts to register under the Securities Act, for public sale
in accordance with the method of disposition specified in such notice from
requesting holders, the number of shares of Restricted Stock specified in such
notice (and in any notices received from other holders within 20 days after
their receipt of such notice from the Company). If such method of disposition
shall be an underwritten public offering, the Company may designate the managing
underwriter of such offering, subject to the approval of the selling holders of
Nassau Restricted Securities, Electra Restricted Securities or Primary
Restricted Stock, as the case may be, requesting registration under the
Securities Act, which approval shall not be unreasonably withheld. The Company
shall only be obligated to register Nassau Restricted Securities or Primary
Restricted Stock pursuant to this Section 4 on three occasions and shall only be
obligated to register Electra Restricted Securities pursuant to this Section 4
on two occasions. Notwithstanding anything to the contrary contained herein,
the obligation of the Company under this Section 4 shall be deemed satisfied
only when a registration statement covering all shares of Nassau Restricted
Securities, Electra Restricted Securities or Primary Restricted Stock specified
in notices received as aforesaid, for sale in accordance with the method of
disposition specified by the requesting holder, shall have become effective.
(c) The number of shares of Restricted Stock to be included in such
an underwriting may be reduced (PRO RATA among the requesting holders based upon
the number of shares so requested to be registered, treating for purposes of
such computation (i) the holders of Preferred Stock as the holders of the
Conversion Shares then issuable upon conversion of such. Preferred Stock, (ii)
the holders of Common Warrants, if then issued and outstanding, as the holders
of the shares of Common Stock issuable upon exercise of the Common Warrants, and
(iii) the holder of the Series B Warrants, if then outstanding, as the holder of
the shares of Common Stock then issuable upon exercise of the Series B Warrant
and conversion of the Series B Shares issuable thereby) if and to the extent
that the managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold therein; PROVIDED,
HOWEVER, if a demand registration is a request
<PAGE>
6
by holders of Nassau Restricted Securities, Electra Restricted Securities or
Primary Restricted Securities pursuant to subpart (a) of this Section 4,to
register and sell Nassau Restricted Securities, Electra Restricted Securities or
Primary Restricted Securities, as the case may be, in the Initial Public
Offering, and the managing underwriters advise the Company in writing that in
their opinion the number of (A) Nassau Restricted Securities, Electra Restricted
Securities or Primary Restricted Securities, as the case may be, requested to be
included in the offering, (B) securities desired by the Company to be included
in such offering and pro rata among the Holders of Nassau Restricted Securities
or Electra Restricted Securities, as the case may be, on the basis of the amount
of Nassau Restricted Securities or Electra Restricted Securities, respectively,
owned by each such holder, and (C) if permitted hereunder, other securities
requested to he included in such offering, exceeds the number of securities
which can be sold therein without adversely affecting the marketability of the
offering, there shall be included in such registration (i) first, the securities
the Company proposes to sell,(ii) second, the Nassau Restricted Securities or
Electra Restricted Securities, as the case may be, requested .to be included in
such registration, and PRO RATA among the holders of Nassau Restricted
Securities or Electra Restricted Securities, as applicable, on the basis of the
amount of Nassau Restricted Securities or Electra Restricted Securities, as the
case may be, owned by each such holder, or PRO RATA among the holders of Nassau
Restricted Securities and Electra Restricted Securities if such demand
registration is a request by holders of Nassau Restricted Securities and holders
of Electra Restricted Securities pursuant to subpart (a) of this Section 4 and
(iii) third, other securities requested to be included in such registration by
holders of the Restricted Stock; PROVIDED, FURTHER, HOWEVER, if a demand
registration is a request by holders of Nassau Restricted Securities, Electra
Restricted Securities or Primary Restricted Securities pursuant to subpart (a)
of this Section 4 to register and sell Nassau Restricted Securities, Electra
Restricted Securities or Primary Restricted Securities, as the case may be,
subsequent to the Initial Public Offering, and the managing underwriters advise
the Company in writing that in their opinion the number of (A) Nassau Restricted
Securities, Electra Restricted Securities or Primary Restricted Securities, as
applicable, requested to be included in the offering, (B) securities desired by
the Company to be included in such offering and PRO RATA among the Holders of
Nassau Restricted Securities or Electra Restricted Securities, as the case may
be, on the basis of the amount of Nassau Restricted Securities or Electra
Restricted Securities, as applicable, owned by each such holder, and (C) if
permitted hereunder, other securities requested to be included in such offering,
exceeds the number of securities which can be sold therein without adversely
affecting the marketability of the offering, there shall be included in such
registration (i) first, the Nassau Restricted Securities or Electra Restricted
Securities, as the case may be, requested to be included in such registration,
PRO RATA among the holders of
<PAGE>
7
such Nassau Restricted Securities or Electra Restricted Securities, as
applicable, on the basis of the amount of Nassau Restricted Securities or
Electra Restricted Securities, as the case may be, owned by each holder, or PRO
RATA among the holders of Nassau Restricted Securities and Electra Restricted
Securities if such demand registration is a request by holders of Nassau
Restricted Securities and Electra Restricted Securities pursuant to subpart (a)
of this Section 4 (ii) second, the securities the Company proposes to sell, and
(iii) third, other securities requested to be included in such registration.
(d) Subject to subpart (c) of this Section 4, the Company shall be
entitled to include in any registration statement referred to in this Section 4,
for sale in accordance with the method of disposition specified by the
requesting holders, shares of Common Stock to be sold by the Company for its own
account, except as and to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten public
offering), such inclusion would adversely affect the marketing of the Nassau
Restricted Securities, Electra Restricted Securities or Primary Restricted Stock
to be sold. Except as provided in this paragraph (d), the Company will not
effect any other registration of its Common Stock, whether for its own account
or that of other holders, from the date of receipt of a notice from requesting
holders pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby.
(e) Notwithstanding anything to the contrary contained in this
Section 4, the Company shall not be required to take any action to effect any
registration pursuant to this Section 4:
(i) if in the case of the Initial Public Offering, the
securities covered by such registration statement will not have an aggregate
offering price of at least $25,000,000.00;
(ii) if the Company intends in good faith to file a registration
statement pertaining to an underwritten public offering of securities for the
account of the Company within 90 days after receipt of a notice under Section
4(a), and the Company so notifies the requesting holder of its intention in
accordance with Section 6; or
(iii) if the holders of a majority of the Additional Restricted
Securities have requested pursuant to Section 5 that the Company file a
registration statement pertaining to an underwritten public offering of
securities at any time within 180 days prior to the receipt by the Company of a
notice under Section 4(a).
5. ADDITIONAL REQUIRED REGISTRATION.
(a) At any time after such date as the Company has
<PAGE>
8
completed a public offering of shares of Common Stock pursuant to an effective
registration statement filed under the Securities Act, the holders of the
Additional Restricted Securities constituting at least a majority of the total
Additional Restricted Securities outstanding at such time (treating for the
purpose of such computation the holders of the Additional Restricted Securities
as the holders of the shares of Common Stock issuable upon exercise of the
Additional Restricted Securities) may request the Company to register under the
Securities Act all or any portion of the Additional Restricted Securities held
by such requesting holder or holders for sale in the manner specified in such
notice, PROVIDED, HOWEVER, that the only securities which the Company shall be
required to register pursuant hereto shall be shares of Common Stock, PROVIDED,
FURTHER, HOWEVER, that, in any underwritten public offering contemplated by
Section 4, 5 or 6 hereof, the holders of Additional Restricted Securities shall
be entitled to sell such Additional Restricted Securities to the underwriters
for conversion or exchange and the sale of the shares of Common Stock issued
upon such conversion; PROVIDED, FURTHER, HOWEVER, that if the Additional
Restricted Securities are to be sold to the underwriters, there shall be
deducted from the proceeds due to the selling holder the aggregate exercise
price required to be paid by such holder upon exercise of the Additional
Restricted Securities.
(b) Promptly following receipt of any notice under this Section 5,
the Company shall immediately notify (i) any holders of Additional Restricted
Securities from whom notice has not been received and (ii) any other holders of
Restricted Stock, and shall use its best efforts to register under the
Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in any notices received from
other holders within 20 days after their receipt of such notice from the
Company). If such method of disposition shall be an underwritten public
offering, the Company may designate the managing underwriter of such offering,
subject to the approval of the selling holders of Additional Restricted
Securities, which approval shall not be unreasonably withheld. The Company shall
be obligated to register additional Restricted Securities pursuant to this
Section 5 on two occasions only. Notwithstanding anything to the contrary
contained herein, the obligation of the Company under this Section 5 shall he
deemed satisfied only when a registration statement covering all of the shares
of Common Stock issuable upon exchange of the Additional Restricted Securities
specified in notices received as aforesaid, for sale in accordance with the
method of disposition specified by the requesting holder, shall have become
effective.
(c) The number of shares of Restricted Stock to be included in such
an underwriting may be reduced (PRO RATA among the requesting holders based upon
the number of shares so requested to be registered, treating for purposes of
such
<PAGE>
9
computation (i) the holders of Preferred Stock as the holders of the Conversion
Shares then issuable upon conversion of such Preferred Stock, (ii) the holders
of Common Warrants, if then issued and outstanding, as the holders of the shares
of Common Stock issuable upon exercise of the Common Warrants, and (iii) the
holder of the Series B Warrants, if then outstanding, as the holder of the
shares of Common Stock then issuable upon exercise of the Series B Warrant and
conversion of the Series B Shares issuable thereby) if and to the extent that
the managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold therein.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 5, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Additional Restricted Securities to be sold. Except as
provided in this paragraph (d), the Company will not effect any other
registration of its Common Stock, whether for its own account or that of other
holders, from the date of receipt of a notice from requesting holders pursuant
to this Section 5 until the completion of the period of distribution of the
registration contemplated thereby.
(e) Notwithstanding anything to the contrary contained in this
Section 5, the Company shall not be required to take any action to effect any
registration pursuant to this Section 5:
(i) if the Company intends in good faith to file a registration
statement pertaining to an underwritten public offering of securities for the
account of the Company within 90 days after receipt of a notice under Section
5(a), and the Company so notifies the requesting holder of its intention in
accordance with Section 6; or
(ii) if the holders of a majority of the Nassau Restricted
Securities, or the holders of a majority of the Electra Restricted Securities,
or the holders of a majority of the Primary Restricted Stock have pursuant to
Section 4 requested that the Company file a registration statement pertaining to
an underwritten public offering of securities at any time within 180 days prior
to the receipt by the Company of a notice under Section 5(a).
6. INCIDENTAL REGISTRATION. If the Company at any time (other than
pursuant to Section 4 or 5 hereof) proposes to register any of its Common Stock
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Form S-4 or S-8 or another form not
<PAGE>
10
available for registering the Restricted Stock for sale to the public), each
such time it will give written notice to all holders of outstanding Restricted
Stock of its intention to do so. Upon the written request of any such holder,
given within 30 days after receipt of any such notice, to register any of its
Restricted Stock (which request shall state the intended method of disposition
thereof), the Company will use its best efforts to cause the Restricted Stock as
to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed, all
to the extent requisite to permit the sale or other disposition by the holder
(in accordance with its written request) of such Restricted Stock so registered.
In the event that any registration pursuant to this Section 6 shall be, in whole
or in part, an underwritten public offering of Common Stock, any request by a
holder pursuant to this Section 6 to register Restricted Stock shall specify
that either (i) such Restricted Stock is to be included in the underwriting on
the same terms and conditions as the shares of Common Stock otherwise being sold
through underwriters under such registration or (ii) such Restricted Stock is to
be sold in the open market without any underwriting, on terms and conditions
comparable to those normally applicable to offerings of common stock in
reasonably similar circumstances. The number of shares of Restricted Stock to
be included in such an underwriting may be reduced (PRO RATA among the
requesting holders based upon the number of shares so requested to be
registered, treating for purposes of such computation (A) the holders of
Preferred Stock as the holders of the Conversion Shares then issuable upon
conversion of such Preferred Stock, (B) the holders of Common Warrants, if then
issued and outstanding, as the holders of the shares of Common Stock issuable
upon exercise of the Common Warrants, and (C) the holder of the Series B
Warrants, if then outstanding, as the holder of the shares of Common Stock then
issuable upon exercise of the Series B Warrant and the conversion of the Series
B Shares issuable thereby) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold therein. Notwithstanding anything to the contrary
contained in this Section 6, in the event that there is a firm commitment
underwritten offering of securities of the Company pursuant to a registration
statement covering Restricted Stock and a selling holder of Restricted Stock
does not elect to sell such holder's Restricted Stock to the underwriters of the
Company's securities in connection with such offering, such holder shall refrain
from selling such Restricted Stock so registered pursuant to this Section 6
during the period of distribution of the Company's securities by such
underwriters and the period in which the underwriting syndicate participates in
the aftermarket; PROVIDED, HOWEVER, that such holder shall, in any event, be
entitled to sell such holder's Restricted Stock in connection with such
registration commencing on the 90th day after the effective date of such
registration statement.
<PAGE>
11
7. REGISTRATION PROCEDURES AND EXPENSES. (a) If and whenever the
Company is required by the provisions of Section 4, 5 or 6 hereof to use its
best efforts to effect the registration of any of the Restricted Stock under the
Securities Act, the Company will, as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement (which, in the case of an underwritten public offering pursuant to
Section 4 or 5 hereof, shall be on Form S 1 or other form of general
applicability satisfactory to the managing underwriter selected as therein
provided) with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (i) above and to comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(iii) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons may reasonably request
in order to facilitate the public sale or other disposition of the Restricted
Stock covered by such registration statement;
(iv) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or blue sky
laws of such jurisdictions as the sellers of Restricted Stock or, in the case of
an underwritten public offering, the managing underwriter, shall reasonably
request;
(v) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing; upon the occurrence of any such event, the Company shall, as
promptly as reasonably practicable, prepare a post effective amendment to the
registration statement or a supplement to the related prospectus or file any
other required document so that, as thereafter delivered to purchasers of the
Restricted Stock, the prospectus will not contain an untrue statement of a
material fact or omit
<PAGE>
12
to state any material fact necessary to make the statements therein not
misleading.
(vi) use its best efforts (if the offering is underwritten) to
furnish, at the request of any seller, on the date that Restricted Stock is
delivered to the underwriters for sale pursuant to such registration: (i) an
opinion dated such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters and to such seller, stating
that such registration statement has become effective under the Securities Act
and that (A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus, and each amendment or supplement
thereof, comply as to form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations of the Commission
thereunder (except that such counsel need express no opinion as to financial
statements contained therein), and (C) to such other effects as may reasonably
be requested by counsel for the underwriters or by such seller or its counsel,
and (ii) a letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to such seller,
stating that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to the registration in respect of
which such letter is being given as such underwriters or seller may reasonably
request; and
(vii) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
(b) For purposes of paragraphs (i) and (ii) above and of Section 4(c)
hereof, the period of distribution of Restricted Stock in a firm commitment
underwritten public offering shall be deemed to extend until each underwriter
has completed the distribution of all securities purchased by it, and the period
of distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all
<PAGE>
13
Restricted Stock covered thereby or nine months after the effective date
thereof.
(c) In connection with each registration hereunder, the selling
holders of Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be necessary in order to assure compliance with federal and applicable
state securities laws.
(d) In connection with each registration pursuant to Section 4, 5 or
6 hereof covering an underwritten public offering, the Company and the selling
holders of Restricted Stock agree to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for such
an arrangement between major underwriters and companies of the Company's size
and investment stature, provided that such agreement shall not contain any such
provision applicable to the Company which is inconsistent with the provisions
hereof.
8. EXPENSES. (a) All expenses incurred by the Company in complying
with Sections 4, 5, 6 and 7 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents
and registrars, costs of insurance and fees and expenses of one counsel for the
sellers of Restricted Stock but excluding any Selling Expenses, are herein
called "Registration Expenses". All underwriting discounts and selling
commissions applicable to the sale of Restricted Stock are herein called
"Selling Expenses".
(b) The Company will pay all Registration Expenses in connection with
each registration statement filed pursuant to Section 4, 5 or 6 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 4, 5 or 6 hereof shall be borne by the holders of Restricted Stock sold
pursuant to such registration statement, PRO RATA in proportion to the number of
securities of each such holder included in such registration.
9. INDEMNIFICATION. (a) In the event of a registration of any of
the Restricted Stock under the Securities Act pursuant to Section 4, 5 or 6
hereof, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder and each underwriter of Restricted Stock thereunder
and each other person, if any, who controls such seller or underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such
<PAGE>
14
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Restricted Stock was registered under the Securities Act pursuant to Section 4,
5 or 6, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each such seller, each such underwriter and each such controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that the Company will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by such
seller, such underwriter or such controlling person in writing specifically for
use in such registration statement or prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 4, 5 or 6 hereof, each seller of
such Restricted Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer or director or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such
Restricted Stock was registered under the Securities Act pursuant to Section 4,
5 or 6, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, PROVIDED, HOWEVER, that such seller will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such,
<PAGE>
15
furnished in writing to the Company by such seller specifically for use in such
registration statement or prospectus, PROVIDED, FURTHER, HOWEVER, that the
liability of each seller hereunder shall not exceed the proceeds received by
such seller from the sale of Restricted Stock covered by such registration
statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party other than under this Section 9. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 9 for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected, PROVIDED, HOWEVER, that, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) Notwithstanding the foregoing, in any such action, any
indemnified party shall have the right to retain its own counsel, but the fees
and disbursements of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party shall have failed to retain counsel for
the indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
<PAGE>
16
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. The
indemnifying party shall not, except with the consent of the indemnified party,
enter into any settlement that does not include as a term thereof an
unconditional release of the indemnified party from all liability with respect
to the applicable claim.
(e) If the indemnification provided for in the first two paragraphs
of this Section 9 is unavailable or insufficient to hold harmless an indemnified
party under such paragraphs in respect of any losses, claims, damages or
liabilities or actions in such proportion as appropriate to reflect the relative
fault of the Company, on the one hand, and the sellers of such Restricted Stock,
on the other, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required under such paragraphs, then the relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Company, on the one
hand, or the sellers of such Restricted Stock, on the other hand, and to the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the parties
hereto agree that it would not be just and equitable if contributions pursuant
to this paragraph were determined by PRO RATA allocation (even if all of the
sellers of such Restricted Stock were treated as one entity for such purpose) or
by any other method of allocation which did not take account of the equitable
considerations referred to above in this paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or action in respect thereof, referred to above in this paragraph, shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, the sellers of such
Restricted Stock shall not be required to contribute any amount in excess of the
amount, if any, by which the total price at which the Common Stock sold by each
of them was offered to the public exceeds the amount of any damages which they
otherwise have been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
(f) The indemnification of underwriters provided for in this Section
9 shall be on such other terms and conditions as are at the time customary and
reasonably required by such underwriters, in which event the indemnification of
the sellers
<PAGE>
17
of Restricted Stock in such underwriting shall at the sellers' request be
modified to conform to such terms and conditions. Upon the reasonable request of
any stockholder selling Restricted Stock pursuant to a registration statement or
any underwriter of such stock, the Company shall obtain an insurance policy
covering the risks described above in this Section 9 in an amount and with a
deductible reasonably requested by such seller or underwriter and naming such
seller, any underwriter of such stock and any person controlling such seller or
underwriter as beneficiaries. The costs of obtaining and maintaining any such
insurance shall be borne by the Company.
10. CHANGES IN COMMON STOCK. If, and as often as, there are any
changes in the Common Stock by way of stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.
11. REPRESENTATIONS AND WARRANTIES OF THE Company. The Company
represents and warrants to each other party hereto as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Amended and Restated Articles of Incorporation or Code of
Regulations of the Company, or any provision of any indenture, agreement or
other instrument to which it or any of its properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, fraudulent conveyance and
other similar laws and principles of equity affecting creditors' rights and
remedies generally.
12. MISCELLANEOUS.
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns. In addition, and whether or not any express assignment shall have been
made, the provisions of this Agreement which are for the benefit of the holders
of
<PAGE>
18
Restricted Stock (or any portion thereof) as such shall be for the benefit of
and enforceable by any subsequent holder of any Restricted Stock (or of such
portion thereof), subject to the provisions respecting the minimum numbers or
percentages of shares of Primary Restricted Stock, Additional Restricted
Securities, Nassau Restricted Securities or Electra Restricted Securities (or of
such portion of each) required in order to be entitled to certain rights, or
take certain actions, contained herein.
(b) All notices, requests, consents and other communications shall be
in writing delivered in person or by facsimile or duly sent by first class
registered or certified mail, postage prepaid, addressed as follows:
(i) if to the Company, at 155 Montrose West Avenue, Suite 210,
Copley, Ohio 44321, facsimile number: (216) 668-2518, Attention: Chief
Executive Officer; and
(ii) if to any holder of Restricted Stock, to such holder at his
or its respective addresses and facsimile numbers set forth in Schedule I
attached hereto, or, in any such case, at such other address, addresses,
facsimile number or numbers as shall have been designated by notice in writing
by such holder to the others. Each holder of Restricted Stock agrees to have at
all times an address and a facsimile number for notices hereunder.
All such notices and communications shall be deemed to have been received (A) in
the case of personal delivery, on the date of such delivery, (B) in the case of
facsimile delivery, upon confirmation of delivery and (C) in the case of
mailing, on the fifth business day following such mailing.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
(d) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes in their entirety all
previous agreements and understandings, including, without limitation,
the.Registration Rights Agreement, dated July 23, 1990, the Amended Registration
Rights Agreement, the Second Amended Registration Rights Agreement, and the
Third Amended and Restated Registration Rights Agreement, and may not be
modified or amended except in writing. The Company shall not grant any rights to
register any of its capital stock in addition to the rights granted in this
Agreement to any party without amending this Agreement.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
19
13. SECURITIES MATTERS. To the extent required, the Company will,
and will cause each of its subsidiaries to, comply in all material respects with
the reporting requirements of the Securities Act and the 1934 Act, or successor
rules thereto or otherwise. The Company will cooperate with each holder of
securities in supplying such information as may be requested by such holder to
comply with the Securities Act or 1934 Act, including Rule 144 and Rule 144A, or
successor rules thereto or otherwise.
<PAGE>
IN WITNESS WHEREOF, the Company and the parties hereto have executed
this Fourth Amended and Restated, Registration Rights Agreement as of the day
and year first above written.
DeCRANE AIRCRAFT HOLDINGS, INC.
By: /s/ R. Jack DeCrane
----------------------------------------
R. Jack DeCrane, Chief Executive
Officer
BANC ONE CAPITAL PARTNERS, L.P.
By:
----------------------------------------
BRANTLEY VENTURE PARTNERS II, L.P
By: Brantley Venture Management II,
L.P., its general partner
By: Pinkas Family Partners, L.P.,
its general partner
By: /s/ Robert P. Pinkas
------------------------------------
ROBERT P. PINKAS , General
----------------
Partner
/s/ R. Jack DeCrane
---------------------------------------------
R. JACK DeCRANE, in his individual capacity
DSV PARTNERS, IV
By: DSV Management, Ltd.
By: /s/ John K. Clarke
--------------------------------------
John K. Clark , General
--------------
Partner
ELECTRA INVESTMENT TRUST, P.L.C.
By:
---------------------------------------
Its:
---------------------------------------
<PAGE>
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /s/ [ILLEGIBLE]
---------------------------------------
Its: Senior Associate
---------------------------------------
ELECTRA ASSOCIATES, INC.
By:
---------------------------------------
Its:
---------------------------------------
THE PROVIDENT BANK
By: /s/ [ILLEGIBLE]
---------------------------------------
Its: Vice President
---------------------------------------
NASSAU CAPITAL PARTNERS L.P.
By: NASSAU CAPITAL L.L.C.
General Partner
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Member
--------------------------------
NAS PARTNERS I L.L.C.
By: /s/ [ILLEGIBLE]
---------------------------------------
Its: Member
---------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Schedule I
Warrants to Series B
Common Purchase Common Series A Convertible Convertible
Shares Shares Preferred Shares Preferred Shares
------ --------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Banc One Capital Partners, L.P.
300 Crescent Drive
Suite 1600 Dallas, TX 75201
Fax: (214) 979-4355 -- 343,569 -- --
Brantley Venture Partner II, L..P.
20600 Chagrin Blvd
Suite 1150
Cleveland, Ohio 44122
Fax: (216) 668-2518 38,076 17,228 101,224 955,996
R. Jack DeCrane
4966 Tulip Drive
Akron, OH 44313
(216) 668-2518 230,770 4,455 -- --
DSV Partner, IV
620 Newport Center Dr.
Suite 990
Newport Beach, CA 92660
Fax: (714) 760-6947 13,174 5,960 35,030 330,775
Electra Investment Trust, P.L.C.
65 Kings Way
London, England
WC2B6QT
Fax: (171) 242-3429 10,327 942,705 27,459 259,288
Electra Associates, Inc.
65 Kings Way
London, England
WC2B6QT
Fax: (171) 242-3429 1,493 119,581 3,969 37,478
Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, NY 10021
Fax: (212) 593-3562 -- 411,645 -- --
The Provident Bank
1800 Provident Tower
East Fourth Street
Cincinnati, OH 45202
Fax: (513) 579-2858 -- 137,215 -- --
Nassau Capital Partners L.P.
22 Chambers Street
Princeton, NJ 08542
Fax: (609) 924-8887 -- 911,284 -- --
NAS Partners I L.L.C.
22 Chambers Street
Princeton, NJ 08542
Fax: (609) 924-8887 -- 5,777 -- --
Richard G. MacDonald -- -- -- --
Chuck H Becker -- -- -- --
Robert A. Rankin -- -- -- --
John R. Hisson -- -- -- --
John Schnepf 8,000 -- -- --
Warrants to
Purchase
Series B Series C Series D Series E
Convertible Convertible Convertible Convertible
Preferred Preferred Preferred Preferred
Shares Shares Shares Shares
----------- ----------- ----------- -----------
Banc One Capital Partners, L.P.
300 Crescent Drive
Suite 1600 Dallas, TX 75201
Fax: (214) 979-4355 -- -- -- --
Brantley Venture Partner II, L..P.
20600 Chagrin Blvd
Suite 1150
Cleveland, Ohio 44122
Fax: (216) 668-2518 30,008 603,712 -- --
R. Jack DeCrane
4966 Tulip Drive
Akron, OH 44313
(216) 668-2518 -- -- -- --
DSV Partner, IV
620 Newport Center Dr.
Suite 990
Newport Beach, CA 92660
Fax: (714) 760-6947 13,446 1,347,987 -- --
Electra Investment Trust, P.L.C.
65 Kings Way
London, England
WC2B6QT
Fax: (171) 242-3429 8,152 279,479 -- 500,000
Electra Associates, Inc.
65 Kings Way
London, England
WC2B6QT
Fax: (171) 242-3429 1,178 40,397 -- --
Internationale Nederlanden (U.S.)
Capital Corporation
135 East 57th Street
New York, NY 10021
Fax: (212) 593-3562 -- -- -- --
The Provident Bank
1800 Provident Tower
East Fourth Street
Cincinnati, OH 45202
Fax: (513) 579-2858 -- -- -- --
Nassau Capital Partners L.P.
22 Chambers Street
Princeton, NJ 08542
Fax: (609) 924-8887 -- -- 1,989,114 991,124
NAS Partners I L.L.C.
22 Chambers Street
Princeton, NJ 08542
Fax: (609) 924-8887 -- -- 10,886 8,876
Richard G. MacDonald -- 30,000 -- --
Chuck H Becker -- 20,000 -- --
Robert A. Rankin -- 15,000 -- --
John R. Hisson -- 10,000 -- --
John Schnepf -- -- -- --
</TABLE>
<PAGE>
DAH & SUBSIDIARIES
------------------
Aerospace Display Systems, Inc.
(Delaware Corporation)
Hollingsead International, Limited
One Newton Road
Churchfield Salisbury
Cory Components, Inc. Wiltshire SP27QA
(California Corporation) England
Tri-Star Electronics Europe SA
Centre Nord / Sud
Cory Holdings, Inc. Stabile 2A
(Ohio Corporation) 6934 B10GG10
Switzerland
Tri-Star Electronics International, Inc.
(Ohio Corporation)
Tri-Star Holdings, Inc.
DeCrane Aircraft Holdings, Inc. (Ohio Corporation)
(Ohio Corporation)
Tri-Star Technologies
Elsinore Engineering, Inc. (California Partnership)
(Delaware Corporation)
Tri-Star Technologies, Inc.
Elsinore Aerospace Services, Inc. (Ohio Corporation)
(California Corporation)
Hollingsead International, Inc.
(Ohio Corporation)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated (i) March 7, 1997,
relating to the consolidated financial statements of DeCrane Aircraft Holdings,
Inc. ("DeCrane") and (ii) August 2, 1996, relating to the financial statements
of Aerospace Display Systems, which appear in such Prospectus. We also consent
to the application of the DeCrane report to the Financial Statement Schedule for
the three years ended December 31, 1996 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
consolidated financial statements referred to in our report. The audits referred
to in such report also included this schedule. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Cleveland, Ohio
March 25, 1997
