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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
June 26, 1998
Date of Report
(Date of earliest event reported)
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DECRANE AIRCRAFT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 0-22371 34-1645569
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification
No.)
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2361 ROSECRANS AVENUE, SUITE 180, EL SEGUNDO, CA 90245
(Address, including zip code, of principal executive offices)
(310) 725-9123
(Registrant's telephone number, including area code)
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NOT APPLICABLE
(Former address and telephone number of principal executive offices, if changed
since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF AVTECH CORPORATION
On June 4, 1998, the Company announced that it signed a definitive agreement
to purchase substantially all of the outstanding stock of Avtech Corporation
("Avtech"). The purchase was consummated on June 26, 1998. Avtech is a leading
provider of cockpit audio, lighting and power control devices and an avionics
systems integrator for the commercial, regional and corporate jet aircraft
markets. Avtech is located in Seattle, Washington.
The total purchase price was $84.7 million in cash at closing, including an
estimated $1.3 million of acquisition related costs. The acquisition was funded
with borrowings under the Company's senior revolving line of credit ("Senior
Credit Facility"). In conjunction with the acquisition, the Senior Credit
Facility was amended to increase the permitted maximum borrowings by $30.0
million to $105.0 million, effective with the closing of the acquisition. The
permitted maximum borrowings are subject to mandatory reductions of up to $45.0
million from the proceeds of certain indebtedness and further automatic
reductions on the last day of each month in a monthly amount of $500,000 from
October 31, 1998 through May 31, 1999 and $1.0 million per month thereafter. The
maximum interest rate margins were increased 0.25% to 1.00% above the prime rate
or 2.25% above the IBOR rate and the maximum commitment fee was increased to
0.425% on the unused portion of the Senior Credit Facility.
The transaction will be accounted for as a purchase and the estimated $60.4
million difference between the purchase price and the fair value of the net
assets acquired will be recorded as goodwill and amortized on a straight-line
basis over 30 years. The Company's consolidated results of operations will
include the operating results of Avtech subsequent to June 26, 1998.
Copies of the press releases issued by the Company on June 4 and 26, 1998
with respect to the Avtech acquisition are attached hereto as Exhibit 99.1 and
Exhibit 99.2, respectively, and are incorporated herein by reference.
ACQUISITION OF DETTMERS INDUSTRIES, INC.
On June 30, 1998, the Company purchased certain assets, subject to certain
liabilities assumed, of Dettmers Industries, Inc. ("Dettmers"). Dettmers is a
manufacturer of aircraft seats and related cabin furnishings for corporate jet
aircraft. Dettmers is located in Stuart, Florida.
The total purchase price was $2.3 million in cash at closing, including an
estimated $141,000 of acquisition related costs, plus contingent consideration
aggregating a maximum of $2.0 million payable over four years based on future
attainment of defined performance criteria during each of the years in the four
year period ending December 31, 2002. The acquisition was funded with borrowings
under the Company's Senior Credit Facility.
The transaction will be accounted for as a purchase and the estimated $2.0
million difference between the purchase price, excluding contingent
consideration, and the fair value of the net assets acquired will be recorded as
goodwill and amortized on a straight-line basis over 30 years. The amount of
contingent consideration paid in the future, if any, will increase goodwill and
will be amortized prospectively over the remaining period of the initial 30-year
term. The Company's consolidated results of operations will include the
operating results of Dettmers subsequent to June 30, 1998.
A copy of the press release issued by the Company on July 1, 1998 with
respect to the Dettmers acquisition is attached hereto as Exhibit 99.3 and is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial statements of businesses acquired.
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Audited financial statements of Avtech Corporation, including notes thereto
and auditors' report thereon, as of September 30, 1997 and 1998 and March 31,
1998 and for each of the three years in the period ended September 30, 1997 and
the six months ended March 31, 1998 are filed herewith as Exhibit 99.4 and are
incorporated herein by reference.
The acquisition of Dettmers Industries, Inc. is not "significant" as such
term is defined in Regulation S-X and therefore audited financial statements are
not filed herewith.
b. Pro forma financial information.
Unaudited pro forma consolidated financial data, including explanatory notes
thereto, as of March 31, 1998 and for the three months ended March 31, 1998 and
the twelve months ended December 31, 1997 are filed herewith as Exhibit 99.5 and
are incorporated herein by reference.
c. Exhibits.
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EXHIBIT
NO. EXHIBIT DESCRIPTION
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2.1 Stock Purchase and Sale Agreement by and among the shareholders of Avtech
Corporation and DeCrane Aircraft Holdings, Inc. *
2.2 Asset Purchase and Sale Agreement by and among Dettmers Industries, Inc.,
Peter Dettmers and Andrew Perl, and DeCrane Aircraft Holdings, Inc. and
DAHX Acquisition, Inc. *
10.1 Consent and Amendment No. 3 to Loan and Security Agreement dated as of May
29, 1998 among DeCrane Aircraft Holdings, Inc., Bank of America National
Trust and Savings Association, successor-by-merger to Bank of America
Illinois, as agent and lender, and Comerica Bank--California, Mellon
Bank, N.A. and Sumitomo Bank of California, as lenders *
99.1 Press release issued by DeCrane Aircraft Holdings, Inc. on June 4, 1998
regarding the signing of a definitive agreement to acquire Avtech
Corporation incorporated by reference in Item 2 of this report **
99.2 Press release issued by DeCrane Aircraft Holdings, Inc. on June 26, 1998
regarding consummation of the acquisition of Avtech Corporation
incorporated by reference in Item 2 of this report *
99.3 Press release issued by DeCrane Aircraft Holdings, Inc. on July 1, 1998
regarding consummation of the acquisition of Dettmers Industries, Inc.
incorporated by reference in Item 2 of this report *
99.4 Audited financial statements of Avtech Corporation, including notes
thereto and auditors' report thereon, as of September 30, 1996 and 1997
and March 31, 1998 and for each of the three years in the period ended
September 30, 1997 and the six months ended March 31, 1998 incorporated
by reference in Item 7(a) of this report *
99.5 Unaudited pro forma consolidated financial data, including explanatory
notes thereto, as of March 31, 1998 and for the three months ended March
31, 1998 and the twelve months ended December 31, 1997 incorporated by
reference in Item 7(b) of this report *
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* -- Filed herewith
** -- Previously filed June 5, 1998 on Form 8-K dated June 4, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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DECRANE AIRCRAFT HOLDINGS, INC.
(Registrant)
July 10, 1998 By: /s/ ROBERT A. RANKIN
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Name: Robert A. Rankin
Title: CHIEF FINANCIAL OFFICER AND
SECRETARY
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EXHIBIT INDEX
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EXHIBIT
NO. EXHIBIT DESCRIPTION
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2.1 Stock Purchase and Sale Agreement by and among the shareholders of Avtech Corporation. and
DeCrane Aircraft Holdings, Inc. *.............................................................
2.2 Asset Purchase and Sale Agreement by and among Dettmers Industries, Inc., Peter Dettmers and
Andrew Perl, and DeCrane Aircraft Holdings, Inc. and DAHX Acquisition, Inc. *.................
10.1 Consent and Amendment No. 3 to Loan and Security Agreement dated as of May 29, 1998 among
DeCrane Aircraft Holdings, Inc., Bank of America National Trust and Savings Association,
successor-by-merger to Bank of America Illinois, as agent and lender, and Comerica
Bank--California, Mellon Bank, N.A. and Sumitomo Bank of California, as lenders *.............
99.1 Press release issued by DeCrane Aircraft Holdings, Inc. on June 4, 1998 regarding the signing of
a definitive agreement to acquire Avtech Corporation incorporated by reference in Item 2 of
this report **
99.2 Press release issued by DeCrane Aircraft Holdings, Inc. on June 26, 1998 regarding consummation
of the acquisition of Avtech Corporation incorporated by reference in Item 2 of this report
*.............................................................................................
99.3 Press release issued by DeCrane Aircraft Holdings, Inc. on July 1, 1998 regarding consummation
of the acquisition of Dettmers Industries, Inc. incorporated by reference in Item 2 of this
report *......................................................................................
99.4 Audited financial statements of Avtech Corporation, including notes thereto and auditors' report
thereon, as of September 30, 1996 and 1997 and March 31, 1998 and for each of the three years
in the period ended September 30, 1997 and the six months ended March 31, 1998 incorporated by
reference in Item 7(a) of this report *.......................................................
99.5 Unaudited pro forma consolidated financial data, including explanatory notes thereto, as of
March 31, 1998 and for the three months ended March 31, 1998 and the twelve months ended
December 31, 1997 incorporated by reference in Item 7(b) of this report *.....................
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* -- Filed herewith
** -- Previously filed June 5, 1998 on Form 8-K dated June 4, 1998.
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EXHIBIT 2.1
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STOCK PURCHASE AND SALE AGREEMENT
This Stock Purchase and Sale Agreement ("Agreement") is made and entered
into by and among the persons named on the signature page who are the owners of
the number of shares specified on Schedule A (the "Shareholders," some of whom
are designated on Schedule A and referred to herein as the "Principal
Shareholders") of Avtech Corporation ("Avtech") and DeCrane Aircraft Holdings,
Inc. ("DAH"), based on the following facts:
Shareholders own not less than 90% of the outstanding stock of Avtech (the
"Stock"); and desire to sell the Stock to DAH;
DAH desires to purchase not less than 90% of the Stock from the Shareholders
on the terms and conditions of this Agreement.
Based on the foregoing facts and circumstances, the parties hereby agree as
follows (capitalized terms being used herein as defined where noted in Schedule
B):
1. STOCK TO BE PURCHASED AND SOLD; PURCHASE PRICE.
1.1 PURCHASE AND SALE OF STOCK. At the Closing, DAH shall purchase
from the Shareholders not less than 90% and up to 100% of the Stock for the
amount specified in Section 1.2. Schedule A reflects the percentage of the
aggregate payments to be made pursuant to Sections 1.2.1 and 1.2.2 to each
of the Shareholders.
1.2 PURCHASE PRICE OF THE STOCK.
1.2.1 On the Closing Date, DAH shall make a wire transfer in
same-day funds to the entity agreed upon by the parties as the paying
agent for the Shareholders (the "Paying Agent"), for the account of the
Shareholders and to such account as the Paying Agent specifies, in a sum
equal to the product of multiplying (a) the percentage representing the
pro rata number of shares being sold by the Shareholders to DAH on such
date by (b) $79 million, but subject to the adjustments set forth in
Section 1.2.3.
1.2.2 On the Closing Date, DAH shall make a wire transfer in
same-day funds to the entity agreed upon by the parties as the escrow
agent (the "Escrow Agent"), to be held by the Escrow Agent pursuant to
the terms of the Escrow Agreement executed among such Escrow Agent and
the parties thereto (the "Escrow Agreement"), in a sum equal to the
product of multiplying (a) the percentage representing the pro rata
number of shares being sold by the Shareholders to DAH on such date by
(b) $4 million.
1.2.3 In determining the amount pursuant to Section 1.2.1 and
subject to the pro rata adjustment provided for in Section 1.2.1 in the
event that DAH purchases less than 100% of the Stock, the purchase price
shall be (i) increased by the amount of cash held by Avtech in the
accounts listed on Schedule 2.2.12 (the "Cash") to the extent that such
amount exceeds $650,000 (the "Minimum Amount") or decreased if the amount
is less than the Minimum Amount by the difference between the Cash and
the Minimum Amount at Closing.
(i) to the extent there are any unpaid Shareholder Closing
Expenses on the Closing Date, such expenses shall be paid by the
Paying Agent; to the extent that there are Shareholder Closing
Expenses which have been advanced by Avtech, the aggregate amount of
such expenses shall be reimbursed to Avtech by the Paying Agent on
the Closing Date. The sum of the amounts described in this clause (i)
shall be deducted from the amount distributed by the Paying Agent to
the Shareholders.
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2. REPRESENTATIONS AND WARRANTIES.
2.1 BY DAH. Except as set forth on Schedule 2.1, the representations
and warranties of DAH, contained in this Agreement, including those
contained in this Section 2.1, are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date. DAH
hereby represents and warrants to the Shareholders the following:
2.1.1 ORGANIZATION. DAH is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
and has all requisite corporate power and authority to own, lease and
operate its properties and conduct its business as now being conducted.
2.1.2 AUTHORIZATION. DAH has all requisite corporate power and
authority to enter into this Agreement, perform its obligations hereunder
and consummate the transactions contemplated hereby. All necessary
corporate action has been taken by DAH with respect to the execution and
delivery of this Agreement, the consummation of the transactions
contemplated by this Agreement, constitutes a valid and binding
obligation of DAH, enforceable against DAH, in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance and moratorium laws and other laws of general application
affecting the enforcement of creditors' rights generally.
2.1.3 BROKERS AND FINDERS. Except for Aerospace Equities, Inc.,
neither DAH nor any of its officers, directors or employees, has engaged
any broker or finder or incurred any liability for any brokerage fees,
commissions, finders' fees or similar fees or expenses and no broker or
finder has acted directly or indirectly for DAH in connection with this
Agreement or the transactions contemplated hereby.
2.1.4 COMPLETE DISCLOSURE. No representation or warranty made by
DAH in this Agreement, and no exhibit, schedule or certificate furnished
to the Shareholders by or on behalf of DAH pursuant to this Agreement or
in connection with the transactions contemplated hereby or thereby,
contains or will contain, any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the
statements contained herein and therein not misleading.
2.2 THE SHAREHOLDERS. Except as set forth on Schedule 2.2, the
representations and warranties of the Shareholders, contained in this
Agreement, including those contained in this Section 2.2, are correct and
complete as of the date of this Agreement and will be correct and complete
as of the Closing Date. The Shareholders severally, but not jointly,
represent and warrant to DAH the following:
2.2.1 CORPORATE ORGANIZATION. Avtech is a corporation duly
organized and validly existing under the laws of the State of Washington,
and has all requisite corporate power and authority to own, lease and
operate its properties and conduct its business as now being conducted.
Avtech is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it or the
property it owns, leases or operates requires it to qualify to do
business as a foreign corporation. Except as set forth on Schedule
2.2.1(a), Avtech has not received any written notice or assertion within
the last three years from any governmental official of any jurisdiction
to the effect that Avtech is required to be qualified or otherwise
authorized to do business therein, in which Avtech has not qualified or
obtained such authorization. Attached as Schedule 2.2.1(b) are complete
and correct copies of Avtech's articles of incorporation and bylaws as in
effect on the date hereof, and Avtech is not in default in the
performance, observation or fulfillment of any provision of either of its
articles of incorporation or bylaws.
2.2.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital
stock of Avtech consists solely of 1,500,000 shares of Common Stock, no
par value and options for 150,000 additional
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shares of Common Stock, all of which Avtech anticipates will be exercised
prior to the Closing Date (collectively, the "Avtech Common Shares");
Avtech has issued and outstanding 318,928.9 Avtech Common Shares,
constituting all of the issued and outstanding shares of capital stock of
any class of Avtech as of the date of this Agreement (not including any
Avtech Common Shares attributable to the options which, as of the date of
this Agreement, have not been exercised); all outstanding Avtech Common
Shares have been (or will be upon exercise of the relevant options)
validly issued and are fully paid and non-assessable and free of
preemptive rights; except as set forth on Schedule 2.2.2, there are no
outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, or other commitments or rights of any type relating to
the issuance, sale or transfer by Avtech of any securities of Avtech, nor
are there outstanding any securities which are convertible into or
exchangeable for any shares of capital stock of Avtech; and Avtech has no
obligation of any kind to issue any additional securities. Schedule A
accurately sets forth the names and addresses of, the number of Avtech
Common Shares held at the date of this Agreement of record and/or
beneficially by, and any Avtech Common Shares to be issued, sold or
otherwise transferred at or prior to the Closing Date to, each and every
shareholder of Avtech. All of such Avtech Common Shares are owned free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, equities and restrictions whatsoever.
2.2.3 AUTHORIZATION OF THE SHAREHOLDERS. Each of the Shareholders
has all requisite power, authority and legal capacity and is competent to
execute and deliver this Agreement, perform its obligations hereunder and
consummate the transactions contemplated hereby. This Agreement
constitutes the legal, valid and binding obligation of each of the
Shareholders, enforceable against each of them in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance and moratorium laws and other laws of general
application affecting the enforcement of creditors' rights generally.
2.2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 2.2.4 are
(i) the balance sheets of Avtech as at September 30, 1997, 1996, and 1995
and March 31, 1998, (ii) the related statements of income for the years
ended September 30, 1997, 1996 and 1995 and the six months ended March
31, 1998, and (iii) the related statements of retained earnings and cash
flows for the years ended September 30, 1997, 1996 and 1995 and for the
six months ended March 31, 1998 (all of such documents referred to
collectively as the "Delivered Financial Statements"). The March 31, 1998
Delivered Financial Statements reflect all "year-end" adjustments
presently anticipated. The Delivered Financial Statements (i) are true,
correct and complete in all material respects, (ii) have been prepared
from and are in accordance with the books and records of Avtech, (iii)
have been prepared using an accrual basis method and FIFO inventory cost
flow assumptions, (iv) are in conformity with generally accepted
accounting principles applied on a consistent basis for such periods, and
(v) fairly present the financial position of Avtech as of the dates
stated and the results of operations and cash flows of Avtech for the
periods then ended in accordance with such practices. On the date of this
Agreement, Avtech does not have any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except
as referred to or reflected or provided for in the balance sheets in the
Delivered Financial Statements. Since March 31, 1998, there has been no
material adverse change in the financial condition, operations, business
or prospects taken as a whole of Avtech from that set forth in the March
31, 1998 Delivered Financial Statements. The Shareholders covenant and
agree to deliver to DAH at or prior to the Closing Date, the unqualified
opinion that the financial statements are prepared in accordance with
GAAP and the requirements of Regulation S-X promulgated by the Securities
and Exchange Commission ("Regulation S-X") of an independent accounting
firm reasonably satisfactory to DAH as respects each of the Delivered
Financial Statements (including the March 31, 1998 Delivered Financial
Statements). When such unqualified opinion is delivered, such financial
statements shall be referred to as the "Audited Financial Statements".
When delivered, the
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Audited Financial Statements shall not differ in any material respect
from the Delivered Financial Statements.
2.2.5 ABSENCE OF CERTAIN CHANGES IN EVENTS. Except as set forth on
Schedule 2.2.5, since March 31, 1998, there has not been:
(a) Any material adverse change in the business operations,
assets, properties or rights, prospects or condition (financial or
otherwise) of Avtech or, any occurrence, circumstance, or combination
thereof which reasonably could be expected to result in any such
material adverse change (a "Material Adverse Effect");
(b) Any material increase in amounts payable by Avtech to or for
the benefit of, or committed to be paid by Avtech: (A) to or for the
benefit of (x) any Key Employee or (y) in the aggregate, to persons
who are shareholders, directors, officers, partners, consultants,
agents and employees, in any capacity, of Avtech but who are not Key
Employees or (B) in any benefits granted under any bonus, stock
option, profit sharing, pension, retirement, deferred compensation,
insurance, or other direct or indirect benefit plan, payment or
arrangement made to, for the benefit of, or with (x) any Key Employee
or (y) in the aggregate, all other persons described in this Section
2.2.5(b);
(c) Any transaction entered into or carried out by Avtech other
than in the ordinary and usual course of business;
(d) Any borrowing or agreement to borrow funds; any incurring of
any assumption, guarantee or other obligation or liability,
contingent or otherwise, or any assumption or performance of any loan
or obligation of any other entity, except (i) current liabilities
incurred in the usual and ordinary course of business or (ii)
otherwise, those in an amount not exceeding in the aggregate $50,000
at any one time outstanding;
(e) Any material change made by Avtech in the methods of doing
business, or other than such changes required by GAAP, any change in
the accounting principles or practices of Avtech with respect to the
Delivered Financial Statements or the method of application of such
principles or practices;
(f) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or
with respect to any of the parcels of real property owned or used by
Avtech in the conduct of its business or in which Avtech otherwise
holds an interest (the "Real Property") or any material mortgage,
pledge, lien, security interest, hypothecation, charge or other
encumbrance imposed or agreed to be imposed on or with respect to any
of the tangible or intangible personal property of Avtech (the
"Personal Property") (the Real Property and the Personal Property are
collectively the "Property");
(g) Any sale, lease or other disposition of or any agreement to
sell, lease or otherwise dispose of any of the properties or assets
of Avtech, other than sales of finished goods in the usual and
ordinary course of business and at Avtech's scheduled prices or the
prices specified in Material Contracts copies of which have
previously been delivered to DAH;
(h) Any purchase of or any agreement to purchase capital assets
for an amount in excess of $50,000 for any one such purchase or
$100,000 for all such purchases made by Avtech or any lease or any
agreement to lease, as lessee, any capital assets with payments over
the term thereof to be made by Avtech exceeding an aggregate of
$50,000 for any one lease or $100,000 in the aggregate;
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(i) Any loan or advance made by Avtech to any individual, firm,
corporation or other entity except for advances not material in
amount made in the usual and ordinary course of business to
employees;
(j) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect
to, any material term, condition or provision of any material
contract, agreement, license or other instrument to which Avtech is a
party, other than any satisfaction by performance in accordance with
the terms thereof in the usual and ordinary course of business;
(k) Any delay or postponement (beyond normal practice) by Avtech
of the payment of accounts payable or other liabilities of Avtech;
(l) Any acceleration (ahead of normal practice) by Avtech in the
collection of accounts receivable; or
(m) Any other event or condition of any character which has had a
Material Adverse Effect or may reasonably be expected to result in a
Material Adverse Effect.
2.2.6 UNDISCLOSED LIABILITIES. Except as disclosed on Schedule
2.2.6, Avtech has no liability or obligation of any nature individually
in the amount of $50,000 or in the aggregate in the amount of $100,000
(whether liquidated, unliquidated, accrued, absolute, known or unknown,
contingent or otherwise and whether due or to become due) except:
(a) those set forth or reflected in the March 31, 1998 Balance
Sheet which have not been paid or discharged since the date thereof;
(b) those arising under agreements or other commitments expressly
identified in any Schedule hereto; and
(c) current liabilities incurred in or as a result of the conduct
of its business in the ordinary and usual course consistent with past
practice since March 31, 1998, which are completely and accurately
reflected on its books and records and which are not inconsistent
with the other representations, warranties and agreements of Avtech
and the Shareholders set forth in this Agreement.
2.2.7 TAXES. Except as set forth on Schedule 2.2.7, Avtech has
filed, when due, all federal, state, local and foreign tax returns and
tax reports. All amounts payable pursuant to such returns by Avtech
through the Closing Date have been paid, or will be timely paid and are
adequately provided for in the Delivered Financial Statements. All such
returns and reports are true and correct and, except as disclosed on
Schedule 2.2.7, none of them has been amended. Schedule 2.2.7 sets forth
the dates and results of any and all audits of any tax returns of Avtech
performed by federal, state, local or foreign taxing authorities; and no
waivers of any statutes of limitation have been made or requested in
connection therewith. No deficiency for any material amount of tax has
been asserted or assessed by any taxing authority against Avtech. All
estimated tax payments have been made except as reserved for in the
Balance Sheet included in the March 31, 1998 Delivered Financial
Statements, there will not be any amount owing by Avtech for taxes,
penalties or interest.
2.2.8 COMPLIANCE WITH LAW.
(a) Avtech is in compliance in all material respects with all
applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated, or judgments, decisions or orders entered, by
any federal, state, local or foreign court or governmental authority
or instrumentality relating to Avtech or any of its businesses or
properties.
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(b) Avtech is in compliance in all material respects with all
federal, state and local laws, ordinances, rules and regulations
pertaining to environmental matters, including solid waste disposal,
toxic substances, hazardous substances, hazardous materials,
hazardous waste, toxic chemicals, pollutants, contaminants and air or
water pollution and to the storage, use, handling, transportation,
discharge and disposal (including spills and leaks) of gaseous,
liquid, semi-solid or solid materials. Avtech has not, and no third
party has, disposed or discharged any chemicals, oil or solid wastes
on any part of the Real Property or any other any property owned,
operated, leased or used by Avtech. There are no underground storage
tanks located on any part of the Real Property or any other property
owned, operated, leased or used by Avtech.
(c) Schedule 2.2.8(c) contains a complete and accurate list of
franchises, licenses, permits, consents, authorization, approvals,
and certificates of any regulatory, administrative or other agency or
body held by Avtech (collectively, the "Permits"). Each of the
Permits is currently valid and in full force and effect and the
closing of and the transactions contemplated by this Agreement will
not result in the termination of any Permit. The Permits constitute
all franchises, licenses, permits, consents, authorizations,
approvals and certificates necessary for the conduct of the business
of Avtech. Without limiting the foregoing, no consents,
authorizations, approvals or similar agreements or acquiescence is
required from any issuer or regulator of any Permit to any of the
transactions contemplated hereby, except to the extent listed on
Schedule 3.1.9. Avtech is not in material violation of any of the
Permits and there is no pending or, to the knowledge of the Principal
Shareholders, threatened proceeding which could result in the
revocation or cancellation of, or inability of Avtech to renew, any
Permit.
(d) Except as set forth in Schedule 2.2.8(d), Avtech is not under
investigation with respect to, and has not been charged with or given
notice of, any material violation of any applicable law.
2.2.9 PROPRIETARY RIGHTS. Avtech has all necessary rights, titles and
interests to all patents, patent applications, trademarks, trade names,
service marks, copyrights, trade secrets, inventions, know-how and other
similar rights ("Intellectual Property") which are material to the operation
of the business of Avtech. Avtech conducts its business without conflict or
infringement with any intellectual property claimed or held by others and,
to the best knowledge of the Principal Shareholders, no person has made or
threatened any claim or action alleging such conflict or infringement.
Schedule 2.2.9 sets forth all of the Intellectual Property owned or used by
Avtech, and all registrations thereof with any government office. None of
the Intellectual Property is registered with any governmental or regulatory
authority except as set forth on Schedule 2.2.9. The amount of each of the
royalties and license fees presently paid by or on behalf of Avtech for the
use of any Intellectual Property is listed in Schedule 2.2.9.
2.2.10 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the
matters listed on Schedule 2.2.10, Avtech is not a party to or bound under
any certificate, mortgage, lien, lease, agreement, contract, instrument,
vote, order, judgment or decree, or any similar restriction not of general
application which materially adversely affects (i) the condition, financial
or otherwise, of Avtech or any part of the Property; (ii) the continued
operation by DAH of the business of Avtech after the Closing Date on
substantially the same basis as said business was theretofore operated; or
(iii) the consummation of the transactions contemplated in this Agreement.
2.2.11 INSURANCE. Schedule 2.2.11 is a true, correct and complete list
of all insurance policies and bonds in force in which Avtech is named as an
insured party, as respects the business of Avtech, or for which Avtech has
been charged or has paid any premiums. Except as disclosed in Schedule
2.2.11, all such policies or bonds are identical in terms, coverage and
exclusions to the policies
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expiring on or about February 18, 1998 as previously delivered to DAH; and
are currently in full force and Avtech has not received any notice from any
such insurer with respect to the cancellation of any such insurance. Avtech
will continue all of such insurance in full force and effect up to and
including the Closing Date. All premiums due and payable on such policies
have been paid. Avtech is not a co-insurer under any term of any insurance
policy.
2.2.12 BANK ACCOUNTS, DEPOSITORIES AND POWERS OF ATTORNEY. Schedule
2.2.12 is a true, correct and complete list of the names and locations of
all banks or other depositories in which Avtech maintains accounts or safe
deposit boxes, and the names of the persons authorized to draw thereon,
borrow therefrom or have access thereto. No person or entity holds a power
of attorney on behalf of Avtech.
2.2.13 REAL PROPERTY. Schedule 2.2.13 contains a complete and accurate
legal description of each parcel of the Real Property. Except as set forth
in Schedule 2.2.13, Avtech has no interests in real property. The Real
Property constitutes all of the real property now used in and necessary for
the conduct of the business of Avtech as presently conducted. Except as set
forth on Schedule 2.2.13, all of the Real Property is held free and clear of
all mortgages, pledges, liens, security interests, encumbrances and
restrictions of any nature whatsoever. No consent is required by the terms
of any agreement relating to Avtech's Real Property, from any person
whatsoever, to effect the transactions contemplated hereby, such that as of
immediately after the Closing Date all of the Real Property will be, free
and clear of all mortgages, pledges, liens, security interest, encumbrances,
restrictions and claims of any nature whatsoever (except to the extent
listed on Schedule 2.2.13). Except as set forth in Schedule 2.2.13, all of
the Real Property, and all real property, buildings and structures located
thereon, is suitable for the purpose or purposes for which it is being used,
and is in such condition and repair as to permit the continued operation of
said businesses. None of the Real Property, buildings or structures is in
need of material maintenance or repairs except for ordinary, routine
maintenance and repairs. There are no material structural defects in the
exterior walls or the interior bearing walls, the foundation or the roof of
any plant, building, garage or other such structure owned, leased or used by
Avtech and the electrical, plumbing and heating systems, and the air
conditioning system, if any, of any such plant, building, garage or
structure are in reasonable operating condition in light of their age and
prior use. The utilities servicing the Real Property are adequate to permit
the continued operation of the business of Avtech and there are no pending
or threatened zoning, condemnation or eminent domain proceedings, building,
utility or other moratoria, or injunctions or court orders which would
materially affect such continued operation. Schedule 2.2.13 lists, and
Avtech has furnished or made available to DAH, copies of all engineering,
geologic and environmental reports prepared by or for Avtech with respect to
the Real Property.
2.2.14 PERSONAL PROPERTY. Except as set forth in Schedule 2.2.14, and
except with respect to personal property leased pursuant to the Personal
Property Leases listed on Schedule 2.2.14, Avtech has good, valid and
marketable title to all of its assets and properties which are Personal
Property of every kind, nature and description, tangible or intangible and
wherever located, including all property and assets which are personal
property shown or reflected on the balance sheet included in the March 31,
1998 Delivered Financial Statements. The Personal Property constitutes all
of the personal property now used in and necessary for the conduct of the
business of Avtech as presently conducted, and is held free and clear of all
mortgages, pledges, liens, security interests, encumbrances and restrictions
of any nature whatsoever. Except as set forth in Schedule 2.2.14, no
financing statement naming Avtech as debtor has been filed in any
jurisdiction, and Avtech is not a party to or bound under any agreement or
legal obligation authorizing any party to file any such financing statement.
Schedule 2.2.14 contains a complete and accurate description of all
machinery, equipment, tooling, parts, furniture, supplies and other tangible
personal property having an individual value of $5,000 or more owned or used
by Avtech. Schedule 2.2.14 contains a complete and accurate description of
all automobiles, trucks and other vehicles owned or used by Avtech. Except
as noted on Schedule 2.2.14
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as unsuitable, all machinery and equipment and tangible personal property
owned or used by Avtech and material to the operation of the business is
suitable for the purpose or purposes for which it is being used, and is in
such condition and repair as to permit the continued operation of said
business. None of such machinery or equipment is in need of material
maintenance or repairs except for ordinary, routine maintenance and repairs.
2.2.15 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 2.2.15,
the operations of Avtech are in compliance with all occupational health and
safety acts and all environmental laws and regulations of all federal, state
and local governmental or regulatory bodies having jurisdiction over Avtech.
Without limiting the generality of the foregoing, and by way of example
only, except as set forth on Schedule 2.2.15:
(a) There has not been, and is not occurring, any Release of any
Hazardous Substance on any real property owned or used by Avtech. For
purposes of this Agreement, the terms "Release" and "Hazardous Substance"
shall have the same meanings as those terms are given in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), except that for purposes
of this Agreement petroleum (including crude oil or any fraction thereof)
shall be deemed a Hazardous Substance.
(b) Avtech has never sent a Hazardous Substance to a site which,
pursuant to CERCLA or any similar state law, (A) has been placed, or is
proposed to be placed, or, may in the future be placed, on the "National
Priorities List" of hazardous waste sites or on any similar list of any
federal, state or local governmental agency, including the Comprehensive
Environmental Response, Compensation and Liability System list for
potential hazardous waste sites, or (B) is subject to a claim, an
administrative order or other request to take "removal" or "remedial"
action (as defined under CERCLA) or to pay for any costs relating to such
site.
(c) Avtech has never been or is currently in violation of any
provision of state or local laws or regulations applicable to the
generation, processing, storage, remediation, or disposal of any
Hazardous Substance or material similarly controlled or regulated by such
laws.
(d) Avtech is not involved in any suit or has received notice of any
claim relating to personal injuries from exposure to Hazardous Substances
or such other controlled or regulated materials.
2.2.16 BROKERS, FINDERS. Except as set forth on Schedule 2.2.16, the
transactions contemplated herein were not submitted to Avtech by any broker
or other person entitled to a commission or finder's fee thereon, and were
not with the consent of Avtech submitted to DAH by any such broker or other
person. Except as set forth on Schedule 2.2.16, neither Avtech nor any of
its officers, directors or employees has engaged any broker or finder or
incurred or taken any action which may give rise to any liability against
itself or the Property for any brokerage fees, commissions, finders fees or
similar fees or expenses and no broker or finder has acted directly or
indirectly for Avtech in connection with this Agreement or the transactions
contemplated hereby. No investment banking, financial advisory or similar
fees have been incurred or are or will be payable by Avtech in connection
with this Agreement or the transactions contemplated hereby; all amounts to
be paid to Dain Rauscher Wessels will be paid by the Shareholders.
2.2.17 LEGAL PROCEEDINGS. ETC. Except as set forth on Schedule 2.2.17,
there is no claim, litigation, action, suit or proceeding, administrative or
judicial, filed, pending or, to the best knowledge of any of the
Shareholders, threatened against Avtech or the Shareholders or involving the
Property, this Agreement or the transactions contemplated hereby, at law or
in equity, before any federal, state or local court or regulatory agency, or
other governmental authority, including any unfair labor practice or
grievance, proceedings or claim. To the best knowledge of the Principal
Shareholders, there is no basis upon which such a claim, litigation, action,
suit or proceeding could reasonably be brought or initiated. Except as set
forth in Schedule 2.2.17, neither any of the
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Shareholders nor Avtech is subject to any judgment, order or decree or any
governmental restriction applicable to Avtech, or such Shareholders, which
could reasonably be expected to have a Material Adverse Effect, or which
materially adversely affects the ability of Avtech to conduct business in
any area.
2.2.18 NO CONFLICT OR DEFAULT. Neither the execution and delivery of
this Agreement or any other document or instrument to be executed pursuant
to the terms hereof nor compliance with the terms and provisions hereof or
thereof, including the consummation of the transactions contemplated hereby,
will (a) violate in any material respect any statute, regulation or
ordinance of any governmental authority, or (b) conflict with or result in
the breach of any term, condition or provision of the articles of
incorporation or bylaws of Avtech or of any agreement, deed, contract,
mortgage, indenture, writ, order, decree, legal obligation or instrument
(with respect to the business of Avtech) to which Avtech or any of the
Shareholders is a party or by which Avtech or any of the Shareholders or any
part of the Property is or may be bound, or (c) constitute a material
default (or an event which with the lapse of time or the giving of notice,
or both, would constitute a material default) thereunder, or (d) result in
the creation or imposition of any material lien, charge, encumbrance, or
restriction of any nature whatsoever with respect to any part of the
Property, or (e) give to others any interest or rights, including rights of
termination, acceleration or cancellation in or with respect to any part of
the Property or the business of or any ownership interest in Avtech.
2.2.19 LABOR RELATIONS. Schedule 2.2.19 sets forth all collective
bargaining or other labor agreements to which Avtech is bound or which
otherwise covers employees of Avtech; and the Shareholders have previously
delivered to DAH true, correct and complete copies of each such agreement.
There is no labor strike, dispute, slowdown or stoppage, or any union
organizing campaign, or petition for certification actually pending or, to
the best knowledge of the Principal Shareholders, threatened against or
involving Avtech. Schedule 2.2.19 sets forth all pending grievances and
arbitration proceedings against Avtech arising out of or under a collective
bargaining or other labor agreement. No collective bargaining or other labor
agreement is currently being negotiated by Avtech. Avtech has not
experienced any work stoppage or other material labor difficulty over the
past three years. No such agreement which is binding on Avtech restricts it
from relocating or closing any or all of its operations.
2.2.20 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Schedule 2.2.20, Avtech does not currently
sponsor, maintain or contribute, or has within the past 3 years
sponsored, maintained or contributed to, to any pension, retirement,
profit-sharing, deferred compensation, bonus, stock option or other
incentive plan, or any other employee benefit program, arrangement,
agreement or understanding, or medical, vision, dental or other health
plan, or life insurance or disability plan, or any other employee benefit
plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not any such
employee benefit plan is otherwise exempt from the provisions of ERISA,
and whether or not formal or informal, written or oral, and whether or
not legally binding. All such plans are fully funded through the date of
this Agreement or amounts sufficient to fully fund contributions to such
plans through the Closing Date are reserved for in the March 31, 1998
Delivered Financial Statements. All such plans, funds or programs
sponsored, maintained or contributed to by Avtech currently or within the
past 3 years, whether or not listed on Schedule 2.2.20, are hereinafter
referred to as the "Employee Benefit Plans"). For the purpose of this
Section 2.2.20, the term "Avtech" shall include all "affiliates" of
Avtech, whether or not incorporated, as such term is used in Section
407(d)(7) of ERISA.
(b) As of the Closing Date, neither Avtech nor any entity that may be
regarded as under common control with Avtech pursuant to Section 414 of
the Internal Revenue Code of 1986, as
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amended (the "Code"), shall have incurred any material unsatisfied
liability under Title IV of ERISA or Section 4980 of the Code, nor shall
any such entity have become subject to a lien pursuant to Section 412(n)
of the Code.
(c) Full payment has been made of all material amounts which Avtech
is required, under applicable law or under any Employee Benefit Plan or
any agreement relating to any Employee Benefit Plan to which it is a
party, to have paid as contributions to or benefits under any Employee
Benefit Plan as of the date hereof. To the extent required by generally
accepted accounting principles, Avtech has made adequate provision in the
Delivered Financial Statements for liabilities to meet current
contributions or benefit payments.
(d) Avtech has performed all obligations required to be performed by
it under the Employee Benefit Plans, except for such non-performance as
would not result in a material liability to Avtech. Except as would not
result in material liability to Avtech, Avtech has not engaged in any
transaction with respect to the Employee Benefit Plans which would
subject Avtech or DAH to a material tax, penalty or liability for a
prohibited transaction under Section 406, 407 or 502(i) of ERISA or
Section 4975 of the Code, nor have Avtech's directors, officers,
partners, employees or agents, to the extent they or any of them are
fiduciaries with respect to such Employee Benefit Plans, breached any of
the responsibilities or obligations imposed upon fiduciaries under Title
I of ERISA or, to the knowledge of the Principal Shareholders, taken any
action or failed to take any action which would result in any claim being
made under or by or on behalf of any such Employee Benefit Plans by any
party with standing to make such claim. Avtech will not have any plan or
commitment, whether formal or informal, written or oral, and whether or
not legally binding, to modify or change any Employee Benefit Plan in any
material manner prior to the Closing Date other than changes required to
comply with applicable laws. Avtech and, to the knowledge of the
Principal Shareholders, any "administrator(s)" (as described in Section
3(16)(A) of ERISA) of the Employee Benefits Plans have complied in all
material respects with the applicable requirements of ERISA, the Code and
all other statutes, orders, rules or regulations, specifically including
material compliance with all reporting and disclosure requirements of
Part 1 of Subtitle B of Title I of ERISA and of the Code in a timely and
accurate manner, and no penalties have been or will be imposed, nor is
Avtech, or, to the knowledge of the Principal Shareholders, any
administrator liable for any penalties imposed, under ERISA, the Code or
otherwise with respect to the Employee Benefit Plans or any related
trusts of Avtech, except for such non-compliance and penalties as would
not result in a material liability to Avtech. Avtech is not delinquent in
the payment of any federal, state or local taxes with respect to the
Employee Benefit Plans. There is no pending litigation, arbitration, or
disputed claim, settlement adjudication or proceeding with respect to the
Employee Benefit Plans, and the Principal Shareholders are not aware of
any threatened litigation, arbitration or disputed claim, adjudication
proceeding, or any governmental or other proceeding, or investigation
with respect to the Employee Benefit Plans or with respect to any
fiduciary or administrator thereof (in their capacities as such), or any
party-in-interest within the meaning of Section 3(14) of ERISA thereto
(with respect to their relationship as such). There is no "defined
benefit plan" within the meaning of Section 414(j) of the Code or Section
3(35) of ERISA to which Avtech or any entity that may be regarded as
under common control with Avtech pursuant to Code Section 414 has been a
party or has been required to make any contributions at any time during
the last six (6) years. There is no "multiemployer plan" within the
meaning of Section 3(37) of ERISA to which Avtech or any entity that may
be regarded as under common control with Avtech pursuant to Code Section
414 has been a party or has been required to make any contributions at
any time during the last six (6) years.
(e) The Shareholders have made available or caused to be made
available as of the date of this Agreement to DAH true, accurate and
complete copies of (A) all Employee Benefit Plans
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and any related trust agreements, custodial agreements, investment
management agreements, insurance contracts or policies, and
administrative service contracts, all as in effect as of the date of this
Agreement, together with all amendments thereto which will become
effective at a later date; (B) the latest Summary Plan Description and
any modifications thereto for each Employee Benefit Plan requiring same
under ERISA; (C) each Form 5500 and/or Form 990 series filing (including
required schedules and financial statements) for the last two fiscal
years for each Employee Benefit Plan required to file such form; and (D)
the most recent determination letter issued by the Internal Revenue
Service with respect to any Employee Benefit Plan. None of Avtech or any
officer, partner, employee, representative or agent of Avtech, has made
any written or oral representations or statements to any current or
former employees, dependents, participants or beneficiaries or other
persons which are inconsistent in any material manner with the provisions
of these documents.
(f) With respect to any of Avtech's employee welfare plans (as
defined in Section 3(1) of ERISA and including those Employee Benefit
Plans which qualify as such) which are "group health plans" under Section
4980B of the Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA"), as amended to date),
there has been timely compliance in all material respects with all
requirements imposed thereunder, as and when applicable to such plans, so
that Avtech has not incurred any (or will not incur any) material loss,
assessment, penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any failure to comply
with any COBRA benefit continuation requirement, which is capable of
being assessed or asserted directly or indirectly against Avtech or any
of its subsidiaries with respect to any such plan. Avtech has no
obligation to provide medical benefits to any former employee, except as
required by applicable law, including, but not limited to, COBRA.
(g) No Employee Benefit Plan maintained by Avtech which is a "welfare
plan" within the meaning of Section 3(1) of ERISA provides benefits to
employees after termination of employment, except as required by
applicable law, including, but not limited to Section 4980B of the Code
and Part 6 of Subtitle B of Title I of ERISA.
(h) The trustee of the Avtech Corporation Employee Stock Ownership
Trust (the "ESOT Trustee" or "ESOT") is not a Shareholder or director,
officer or employee of Avtech and has no financial interest in the
transaction contemplated by this Agreement.
2.2.21 CONTRACTS AND COMMITMENTS. Schedule 2.2.21 is a list of all
contracts, agreements, contract rights, leases, license agreements,
franchise rights and agreements, policies, purchase and sales orders,
quotations and executory commitments, instruments, guaranties,
indemnifications, arrangements, obligations and understandings (written
or oral) to which Avtech is a party, all without any counterclaim set-off
or defense and which involve the payment by or to Avtech in the
individual amount of $50,000 or in the aggregate amount of $100,000 or
more during any year, or are otherwise necessary to the operation of the
business of Avtech as currently conducted (the "Material Contracts").
Each of the Material Contracts is valid and binding, in full force and
effect and enforceable against Avtech in accordance with its respective
provisions. Avtech has not assigned, mortgaged, pledged, encumbered, or
otherwise hypothecated any of its right, title or interest under any
Material Contract, or under any lease of personal property or real
property to which Avtech is a party (herein, a "Lease") whether or not
each Lease constitutes a Material Contract. A correct and complete copy
of each Material Contract and Lease has previously been delivered to DAH.
Avtech is not in violation of, in default in respect of, nor has there
occurred an event or condition which, with the passage of time of giving
of notice (or both) would constitute a violation or default of any
Material Contract; and there are no facts or circumstances known to the
Principal Shareholders which would reasonably indicate that Avtech (or
any other party) will
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be or may be in violation of or in default in respect of any Material
Contract, subsequent to the date hereof. Without limiting the foregoing,
no consents, authorizations, approvals or similar agreements or
acquiescence is required from any party under any Material Contract or
Lease to any of the transactions contemplated hereby, except to the
extent listed on Schedule 3.1.9 hereof. No notice has been received by
Avtech claiming any such default by Avtech or indicating the desire or
intention of any other party thereto to amend, modify, rescind or
terminate the same.
2.2.22 ACCOUNTS RECEIVABLE. All of the accounts and notes
receivable, investments, deposits and prepaid expenses of Avtech as of
March 31, 1998 are set forth on Schedule 2.2.22. All accounts receivable,
arising between March 31, 1998 and the Closing Date (in each case net of
allowances for doubtful accounts), (a) are or will be valid and
subsisting, (b) represent or will represent sales actually made, (c)
arose or will arise in the ordinary and usual course of the business of
Avtech and (d) to the extent not collected prior to the Closing Date,
will be collectible according to their terms on or before December 31,
1998, all without any counterclaim, set-off or defense.
2.2.23 INVENTORIES. Schedule 2.2.23 completely and accurately lists
all raw materials, supplies, parts, work-in-process, and finished goods
inventory and other inventory owned by Avtech and the accurate cost of
such inventory as of March 31, 1998. Except as set forth in Schedule
2.2.23, and except for amounts which in the aggregate are not material,
all such inventories (i) consist of a quality and quantity usable and
saleable in the ordinary and usual course of business, except for items
of obsolete materials and materials of substandard quality, all of which
have been written off or written down on the books of Avtech to net
realizable value prior to March 31, 1998 and (ii) have been priced at the
lower of cost or market on a FIFO basis. The quantities of all material
portions of each type of inventory (whether raw materials, work-in-
process, or finished goods) are not excessive, but are reasonable and
warranted in the present circumstances of Avtech; and all material
portions of work-in-process and finished goods inventory is free of any
material defect or other deficiency.
2.2.24 BACKLOG. All unfilled orders to purchase goods of Avtech as
of March 31, 1998 are set forth in Schedule 2.2.24 and are firm and
binding commitments (subject to cancellation rights set forth therein) of
the respective purchasers assuming the purchasers have duly authorized
such purchases.
2.2.25 BOOKS OF ACCOUNT: RECORDS. Except as disclosed in Schedule
2.2.25, the general ledgers, books of account and other financial records
of Avtech are complete and correct, have been maintained in accordance
with generally accepted accounting principles and practices and the
matters contained therein are appropriately and accurately reflected in
the Delivered Financial Statements in all material respects.
2.2.26 OFFICERS, PARTNERS. EMPLOYEES AND COMPENSATION. Schedule
2.2.26 lists (i) the GMT, (ii) the AMT, (iii) the "Key Employees" who,
for purposes of this Agreement are Steve Froebe, Test Engineering Group
Leader, Ron Feigal, Principal Engineer, Jeff Jorgensen, Staff Engineer
and Bill Cuffel, Staff Engineer, and (iv) any Shareholder who is an
employee of Avtech and not included in any of the above groups, together
with the total salary, bonus payments, fringe benefits and perquisites
each received in each of the 3 fiscal years ended September 30, 1997,
changes to the foregoing which have occurred since September 30, 1997,
and the professional background of each Key Employee for the last 5 years
to the best of the knowledge of the Principal Shareholders. There are no
other material forms of compensation paid by Avtech to any of the persons
named in (i) through (iv) above. The provisions for wages and salaries
accrued on the March 31, 1998 Balance Sheet are adequate for salaries and
wages, including accrued vacation pay, for the period up through the date
thereof, and Avtech has accrued on its books and records all obligations
for wages and salaries and other compensation to its employees,
including,
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but not limited to, vacation pay and sick pay, and all commissions and
other fees payable to agents, salesmen and representatives. Avtech has
filed or will file any and all payroll tax returns due through the
Closing Date and pay or reserve on the Closing Date Balance Sheet all
payroll taxes due for any and all Avtech employees.
Except as set forth on Schedule 2.2.26, Avtech has not become
obligated, directly or indirectly, to any shareholder, director, officer
or partner of Avtech or any member of their families, except for current
liabilities for employment compensation or director's fees. Except as set
forth on Schedule 2.2.26, no shareholder, director, officer, partner,
agent or employee of Avtech holds any position or office with or has any
financial interest, direct or indirect, in any supplier, customer or
account of, or other outside business which has transactions with Avtech.
Neither Avtech, nor any third party, has taken any action with respect to
any shareholder, director, officer, partner, employee or representative
of Avtech to attempt to induce or which would influence any such person
not to become associated with DAH from and after the Closing Date or from
serving DAH in a capacity similar to the capacity presently held. To the
knowledge of the Principal Shareholders, no employee of Avtech has a
present intention to leave the employ of Avtech or has taken any action
directed towards leaving the employ of Avtech. Except as set forth on
Schedule 2.2.26, to the knowledge of the Principal Shareholders, no
former employee of Avtech is currently in or intends to enter into
competition with the business of Avtech.
2.2.27 CREDIT TERMS: PRODUCT WARRANTIES. Adequate reserves have
been made (and are reflected in the Delivered Financial Statements) for
the aggregate amount of losses and expenses incurred by reason of
allowances, customer dissatisfaction or liabilities arising under
Avtech's warranties and guarantees during the three years ended September
30, 1997; and there has been no material adverse change in that
experience since said date. Except as set forth on Schedule 2.2.27, (i)
there have been no recalls of Avtech product, (ii) to the best knowledge
of the Principal Shareholders, there is no Avtech product which is either
defective or likely to experience a failure rate materially greater than
the average for Avtech's products over the three year period ended
September 30, 1997, and (iii) Avtech has conducted all qualification
inspections and quality conformance inspections required by the
specifications for products of Avtech included on qualified products
lists in material compliance with the requirements of such
specifications, and all products shipped have been in material
conformance with such specifications. Except as set forth and explained
on Schedule 2.2.27, there have been no material departures from the
standard terms and conditions of credit, discounts and warranties given
by Avtech to its customers; and all of such standard terms and conditions
are set forth on such schedule.
2.2.28 CONTRACTS WITH AFFILIATES. Any contract, commitment, lease,
permit or other instrument, agreement, understanding or obligation (each
a "Commitment") between Avtech and any affiliate (including each
Shareholder), is the equivalent of an "arms-length" transaction with a
third party, and each such Commitment is described on Schedule 2.2.28
hereto.
2.2.29 GOVERNMENT CONTRACTS. Except as set forth on Schedule
2.2.29, Avtech is not a party to, nor is it bound by, nor does it have
any liability with respect to, any Government Contracts and has not
submitted any bid with respect thereto, which has not expired. For
purposes of this Section 2.2.29, the term "Government" means any agency,
division, subdivision, audit group, or procuring office of the federal
government, including the employees or agents thereof; the term
"Transferor" means Avtech and its subsidiaries, divisions, affiliates,
joint venturers, agents, employees, officers and directors; the term
"Government Contract" means any prime contract, subcontract, basic
ordering agreement, letter contract, purchase order or delivery order of
any kind, including all amendments, modifications and options thereunder
or relating thereto, between Transferor and any of a Government, any
prime contractor of a Government, any subcontractor of such a prime
contractor or any subcontractor of another subcontractor, however far
removed from the prime contractor such subcontractor may be, (A)
currently in force;
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(B) which, within the three years preceding the date of this Agreement,
expired or were terminated; or (C) for which final payment was received
within the three years preceding the date of this Agreement; and the term
"Bid" means any outstanding quotation, bid or proposal submitted by
Transferor to a Government, any proposed prime contractor of a
Government, or any proposed subcontractor.
2.2.30 EXCLUSIVE SELLING ARRANGEMENTS; STRATEGIC ALLIANCES. Except
as disclosed in Schedule 2.2.30, (i) Avtech has entered into no exclusive
selling arrangements, and (ii) no agreement or understanding has been
entered into, proposed, or regardless of commencement date, is in force
between Avtech and any company which is an arrangement with any other
person which involves equity investment or ownership, a joint venture or
revenue or profit sharing (herein, a "Strategic Alliance"). An
arrangement for a preferred supplier relationship which does not have any
of the characteristics described in the foregoing sentence is not a
Strategic Alliance. No Strategic Alliances have been terminated by Avtech
since April 1, 1998.
2.2.31 PAYMENTS AND EXPENDITURES. Except as set forth in Schedule
2.2.31 since March 31, 1998, Avtech has not (i) made any payment or
incurred any liability on behalf of any Shareholder, (ii) made any
payment to or on behalf of any Shareholder except for the Shareholder's
salary and expense reimbursements made in the ordinary course of
business, or (iii) paid any amount not in the ordinary course of Avtech's
business.
2.2.32 NEW COMPETITIVE PRODUCTS, PRICING, TECHNOLOGICAL
DEVELOPMENTS, COMPETITION. Except as disclosed in Schedule 2.2.32, to the
best knowledge of the Principal Shareholders, there are no (i) products
introduced by others since October 1, 1997 which are competitive with the
products of Avtech, (ii) material reductions in the prices of products of
products competitive with the products of Avtech, (iii) technological
developments announced which would make any of Avtech's products obsolete
or (iv) entries by any new competitor into Avtech's markets, in each case
other than as described in the Confidential Information Memorandum dated
March, 1998 previously delivered to DAH (the "Information Memorandum").
2.2.33 KEY EMPLOYEES. Except as disclosed in Schedule 2.2.26, since
March 31, 1998 no Key Employees have terminated employment with Avtech
and no Key Employees have given notice to Avtech or to any Principal
Shareholder of termination. The Principal Shareholders anticipate that
all Key Employees will continue employment with Avtech after the Closing
Date.
2.2.34 COMPLETE DISCLOSURE. No representation or warranty made by
Avtech or any of the Shareholders in this Agreement, and no exhibit,
schedule or certificate furnished to DAH by or on behalf of Avtech or any
of the Shareholders pursuant to this Agreement or in connection with the
transactions contemplated hereby or thereby, including the Confidential
Informational Memorandum, contains or will contain, any untrue statement
of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not
misleading.
3. COVENANTS.
3.1 COVENANTS OF THE SHAREHOLDERS.
3.1.1 COVENANT AGAINST DISCLOSURE. Other than in the ordinary
course of business of Avtech and except for professional advisors
(including attorneys, accountants and investment bankers) who agree to
maintain the confidentiality of such information, each of the
Shareholders agree not to (a) disclose to any person, association, firm,
corporation or other entity (other than DAH or those designated in
writing by DAH) in any manner, directly or indirectly, any information or
data relevant to the business of Avtech, whether of a technical or
commercial nature, or (b) use, permit or assist, by acquiescence or
otherwise, any person, association, firm, corporation or other entity
(other than DAH or those designated in writing by DAH) to use, in
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any manner, directly or indirectly, any such information or data,
excepting only use of such data or information as is at the time
generally known to the public and which did not become generally known
through any breach of any provision of this Section 4.2.2.
3.1.2 [Intentionally Deleted].
3.1.3 INJUNCTIVE RELIEF. Each of the Principal Shareholders
acknowledges and agrees that DAH's remedy at law for any breach of any of
such Shareholders' obligations under Subsections 3.1.1 and 3.1.2 hereof
would be inadequate, and agrees and consents that temporary and permanent
injunctive relief may be granted in a proceeding which may be brought to
enforce any such provision without the necessity of proof of actual
damage. The rights and remedies conferred upon DAH under this Section, or
by any instrument or law, shall be cumulative and may be exercised
singularly or concurrently.
3.1.4 CONDUCT OF BUSINESS OF AVTECH PRIOR TO CLOSING DATE. Each of
the Principal Shareholders agrees that on and after the date hereof and
prior to the Closing Date:
(a) The business and operations, activities and practices of Avtech
shall be conducted only in the ordinary course of business and consistent
with past practice;
(b) No change shall be made in the articles of incorporation or
bylaws of Avtech;
(c) No change shall be made in the number of shares of authorized or
issued capital stock of Avtech, nor shall any option, warrant, call,
right, commitment or agreement of any character be granted or made by
Avtech relating to its equity; except that all of the outstanding options
shall be exercised on or prior to the Closing Date as and in the amounts
set forth in Schedule 2.2.2;
(d) No dividend shall be declared or paid or other distribution
(whether in cash, stock, property or any combination thereof) or payment
declared or made in respect of the Avtech Common Shares by Avtech, nor
shall Avtech purchase, acquire, redeem or split, combine or reclassify
any shares of the capital stock of Avtech;
(e) The Principal Shareholders shall not, directly or indirectly,
solicit or encourage (including by way of furnishing any non-public
information concerning the business, properties or assets of Avtech), or
enter into any negotiations or discussions concerning, any Acquisition
Proposal (as defined below). Any Shareholder will notify DAH promptly by
telephone, and thereafter promptly confirm in writing, if any such
information is requested from, or any Acquisition Proposal is, to the
knowledge of such Shareholder, received by Avtech, Dain Rauscher Wessels
or such Shareholder. As used in this Agreement, "Acquisition Proposal"
shall mean any proposal received by Avtech or any Principal Shareholder
prior to the Closing Date for a merger or other business combination
involving Avtech or for the acquisition of, or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of
Avtech, other than the one contemplated by this Agreement.
(f) Except as set forth in Schedule 3.1.4(f), the Principal
Shareholders will not permit Avtech to:
(A) incur, become subject to, or suffer, or agree to incur,
become subject to or suffer, any obligation or liability (absolute or
contingent) except current liabilities incurred, and obligations
entered into in the ordinary course of business;
(B) discharge or satisfy any lien or encumbrance or pay any
obligation or liability (absolute or contingent) other than
liabilities payable in the ordinary course of business;
(C) mortgage, pledge or subject to lien, charge or any other
encumbrance any of the Property or agree so to do;
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(D) sell or transfer or agree to sell or transfer any of its
assets, or cancel or agree to cancel any debt or claim, except in
each case in the ordinary course of business;
(E) consent or agree to a waiver of any right of substantial
value;
(F) enter into any transaction other than in the ordinary course
of its business;
(G) increase the rate of compensation payable or to become
payable by it to any Key Employee over the rate being paid to such
Key Employee at March 31, 1998;
(H) terminate any Material Contract, any Lease or any Permit;
(I) through negotiation or otherwise, make any commitment or
incur any liability or obligation of a material nature to any labor
organization;
(J) make or agree to make any accrual or arrangement for or
payment of bonuses or special compensation of any kind to any
Restricted Employee;
(K) make or agree to make any accrual or arrangement for or
payment of bonuses or special compensation of any kind to any
Non-Restricted Employee, other than in the ordinary course of
business and in accordance with Avtech's practice;
(L) directly or indirectly pay or make a commitment to pay any
severance or termination pay to any Key Employee;
(M) directly or indirectly pay or make a commitment to pay any
severance or termination pay to any Non-Restricted Employee, other
than in the ordinary course of business and in accordance with
Avtech's past practice;
(N) introduce any new method of management, operation or
accounting with respect to its business or any of the assets,
properties or rights applicable thereto, other than changes required
by GAAP;
(O) offer or extend more favorable credit terms, discounts or
allowances than were offered or extended regularly on and prior to
March 31, 1998, other than in the ordinary course of business and in
accordance with Avtech's past practice;
(P) make capital expenditures in excess of $100,000 in the
aggregate, or make any commitments for such capital expenditures;
(Q) Enter into any Strategic Alliance; or
(R) Make any material change in the prices, discounts or
allowances for any Avtech product.
(g) Each of the Principal Shareholders will use their respective
reasonable efforts to preserve Avtech's business organization materially
intact, to keep available to Avtech the present service of Avtech's
employees; and to preserve for Avtech the good will of its suppliers,
customers and others with whom business relationships exist;
(h) In light of the provisions of clause (i) of Section 1.2.3, the
Principal Shareholders will take all necessary actions to assure that (i)
Avtech does not accelerate the conversion of other assets to Cash and
(ii) Avtech timely pays all of its obligations; and
(i) None of the Principal Shareholders will take, agree to take or
permit to be taken any action or do or permit to be done, anything in the
conduct of the business of Avtech, or otherwise, which would be contrary
to or in breach of any of the terms or provisions of this Agreement or
which would cause any of the representations or warranties of the
Shareholders contained herein to be or become untrue in any material
respect.
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3.1.5 INSPECTION OF BOOKS AND RECORDS. From the date of this
Agreement until the Closing Date, the Principal Shareholders shall cause
Avtech to make available to DAH for examination the Property and all
corporate records, minute books, share records, treasury shares, tax
returns, books of account, contract, agreements, commitments, records and
its documents of every character relating to Avtech and its business and
shall permit DAH and its representatives, attorneys, accountants and
agents to have access to and to copy, at DAH's expense, the same at all
reasonable times, so as to allow DAH to confirm compliance with covenants
and satisfaction of conditions hereunder.
3.1.6 FURTHER ASSURANCES. On and after the Closing Date, the
Shareholders shall prepare, execute and deliver, at DAH's expense, such
further instruments of conveyance, sale, assignment or transfer, and
shall take or cause to be taken such other or further action as DAH shall
reasonably request at any time or from time to time in order to perfect,
confirm or evidence in DAH title to all or any part of the Stock or to
consummate, in any other manner, the terms and conditions of this
Agreement.
3.1.7 PRESS RELEASES AND ANNOUNCEMENTS. DAH and the Principal
Shareholders shall not and the Principal Shareholders shall cause Avtech
not to issue any press release or announcement relating to the subject
matter of this Agreement without the prior written approval of the other
parties hereto; PROVIDED, HOWEVER, that DAH may make any public
disclosure it believes in good faith is required by law (in which case he
or it will advise the other parties hereto prior to making the
disclosure).
3.1.8 BANKRUPTCY. No Principal Shareholder shall (i) cause Avtech
to commence any case, proceeding or other action (a) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to either of them or
seeking to adjudicate either of them bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to either of them
or for all of any substantial part of either of their assets, or (b) make
a general assignment for the benefit of its creditors; (ii) commence any
case, proceeding or other action of a nature referred to in clause (i)(a)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed or discharged for
a period of 60 days; (iii) commence any case, proceeding or other action
seeking issuance of a warrant of attachment, execution distraint or
similar process against all or any substantial part of either of their
respective assets which results in the entry of an order for any such
relief; and (iv) neither Avtech nor any Shareholder shall take any action
in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
above.
3.1.9 CONSENTS, ETC The Shareholders shall obtain, in form and
substance reasonably satisfactory to DAH, an effective executed consent
from each person from which consent is required as disclosed in Schedule
3.1.9.
3.1.10 CLOSING DATE BALANCE SHEET. The Shareholders will cause a
balance sheet as of the Closing Date to be delivered to DAH within a
reasonable time after the Closing Date (the "Closing Date Balance Sheet")
which shall be true, correct and complete; shall have been prepared from
and in accordance with the books and records of Avtech in conformance
with generally accepted accounting principles applied on a consistent
basis using an accrual basis method and in compliance with Regulation S-X
and audited by an independent accounting firm reasonably acceptable to
DAH; and shall fairly present the financial condition of Avtech as of the
date stated on such Closing Date Balance Sheet in accordance with such
practices.
3.1.11 RELEASE. Each Shareholder does hereby release and discharge
Avtech and its officers, directors and agents (the "Releasees") from any
and all claims, demands and causes of
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action which such Shareholder has against any of the Releasees arising
from their status as a Shareholder. This release applies to any and all
such claims, demands or causes of action, whether known or unknown,
contingent or matured. The release granted in this Section 3.1.11 shall
become effective concurrent with the Closing. If the transaction
contemplated by this Agreement does not close, this release shall be null
and void.
3.2 COVENANTS OF DAH. DAH covenants that:
3.2.1 LEGAL OPINION. On or prior to the Closing Date, it shall
deliver to the Shareholders, duly and properly executed, the legal
opinion referred to in Section 5.2.1.
3.2.2 PAYMENTS. On or prior to the Closing Date, DAH shall make the
payments to be made pursuant to Section 1.2.1 and Section 1.2.2.
3.2.3 FURTHER ASSURANCES. On and after the Closing Date, DAH shall
prepare, execute and deliver, at its expense, such further instruments of
conveyance, sale, assignment or transfer, and shall take or cause to be
taken such other or further action as the Principal Shareholders shall
reasonably request at any time or from time to time in order to perfect,
confirm or evidence in DAH title to all or any part of the Stock or to
consummate, in any other manner, the terms and conditions of this
Agreement.
3.2.4 CONFIDENTIALITY AGREEMENTS. Between the date of this
Agreement and the Closing Date, DAH shall continue to be bound by its
obligations pursuant to the written confidentiality agreements to which
DAH and Avtech are parties. Nothing contained in this Section 3.2.4 shall
be interpreted to seek to prohibit DAH from any required public
disclosure.
3.2.5 Promptly following the Closing, DAH shall take all necessary
action to terminate the ESOT and shall distribute its assets as soon as
practicable following receipt of a favorable determination letter from
the Internal Revenue Service with respect to the termination of ESOT.
4. INDEMNIFICATION.
4.1 To the extent of the amount deposited with the Escrow Agent
pursuant to Section 1.2.2, the Shareholders hereby indemnify and hold DAH
harmless from any and all claim, loss, damage or expense (including
reasonable attorneys' fees) as a result of any breach of any warranty or
representation made in Sections 2.2.4, 2.2.6, 2.2.7, 2 2.8(b), 2.2.15,
2.2.17 or 2.2.27 of this Agreement by the Shareholders.
4.2 In the event of any breach of any obligation by any of the
Shareholders to DAH based on intentional misrepresentation, concealment or
wilful or wanton disregard of the facts, there shall be no limitation of
dollar amount and such claim for intentional misrepresentation, concealment
or wilful or wanton disregard of the facts shall be with full recourse
against such Shareholder for the full amount of such claim.
4.3 Any claim for indemnification under this Section 4 must be asserted
prior to April 1, 1999.
5. CONDITIONS PRECEDENT TO OBLIGATIONS.
5.1 CONDITIONS TO OBLIGATIONS OF DAH. Each and every obligation of DAH
to be performed at the Closing Date shall be subject to the satisfaction as
of or before the Closing Date of the following conditions (unless waived in
writing by DAH):
5.1.1 CONSENTS. Avtech shall have obtained and delivered to DAH
each of the consents required by Section 3.1.9.
5.1.2 CERTIFICATE. A certificate executed by each of the Principal
Shareholders favorably evidencing as of the Closing Date (a) the accuracy
of the representations and warranties of the
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Shareholders set forth in this Agreement, (b) the compliance with the
covenants of the Shareholders set forth in this Agreement, and (c) the
absence of any material adverse change in the financial condition,
operations, business or prospects taken as a whole of Avtech from that
set forth in the March 31, 1998 Delivered Financial Statements.
5.1.3 OPINION OF COUNSEL. The Shareholders shall have delivered or
caused to be delivered to DAH an opinion of counsel for the Shareholders,
addressed to DAH and dated the Closing Date, in the form of Exhibit 5.1.3
attached hereto.
5.1.4 DELIVERY OF CERTAIN AGREEMENTS BY SHAREHOLDERS. The persons
listed on Exhibit 5.1.4 shall have executed and delivered Employment
Agreements to DAH in the form of Exhibit 5.1.4 attached hereto. The
Shareholders shall have delivered the Escrow Agreement. Robert Hancock
shall have delivered a Termination of Employment Agreement in the form of
Exhibit 5.1.4.
5.1.5 DELIVERY OF STOCK AND RECEIPT OF PAYMENT. The Shareholders
shall deliver the stock certificates representing not less than 90% of
the outstanding Stock of Avtech duly endorsed for transfer by assignments
separate from certificates, endorsed in blank with signatures guaranteed
by a national bank or member firm of the New York Stock Exchange.
5.1.6 HART-SCOTT-RODINO. Prior to the Closing, (i) Avtech and the
Shareholders shall each have timely made all filings, submissions and
responses which are required of them, or are in DAH's reasonable judgment
desirable, in connection with the transactions contemplated herein
pursuant to the Hart-Scott-Rodino Act, and (ii) all waiting periods
applicable under such Act shall have been terminated. Avtech and each of
the Shareholders covenant to timely make all such filings, submissions
and responses, and upon DAH's request if it so elects, to join in any
request for early termination of such waiting periods.
5.1.7 AUDITED FINANCIAL STATEMENTS. The Shareholders shall have
delivered the Audited Financial Statements.
5.1.8 TITLE INSURANCE. At or prior to the Closing Date, the
Shareholders shall deliver to DAH one or more ALTA owner's policies of
title insurance, including such endorsements (including survey, address,
non-encroachment, ingress and zoning endorsements) as DAH may reasonably
request, insuring Avtech's title to all of the Real Property subject only
to such exceptions as (a) do not impair the use by Avtech of such
property in the ordinary course of its business as now conducted, and (b)
are otherwise reasonably acceptable to DAH, and in the amount for each
parcel of the current fair market value of such parcel as established by
the December, 1998 appraisal of the Real Property previously delivered to
DAH.
5.1.9 TRANSITION DOCUMENTATION. Executed originals, in form and
substance reasonably satisfactory to DAH, of (a) signature cards for each
deposit or similar account listed in Schedule 2.2.12, listing such
parties as DAH may direct, (b) the original corporate minute book of
Avtech, and (c) the resignation of each of the members of the Board of
Directors of Avtech effective as of the Closing Date.
5.1.10 HEALTH CARE PLAN. On or prior to the Closing and effective
July 1, 1998, Avtech shall have made arrangements to provide an insured
medical plan to its employees with benefits substantially similar to
Avtech's existing self-insured medical plan.
5.2 CONDITIONS TO OBLIGATIONS OF AVTECH AND THE SHAREHOLDERS. Each and
every obligation of the Shareholders, to be performed on or before the
Closing Date shall be subject to the satisfaction as of or before such time
of the following conditions (unless waived in writing by the Shareholders).
5.2.1 OPINION OF COUNSEL. DAH shall have delivered or caused to be
delivered to the Shareholders an opinion of counsel for DAH, addressed to
the Shareholders and dated the Closing Date, in form of Exhibit 5.2.1
attached hereto.
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5.2.2 PAYMENT. DAH shall have made the payments required pursuant
to Section 1.2.1 and 1.2.2.
5.2.3 HART SCOTT RODINO. Prior to the Closing Date, (i) DAH shall
have timely made all filings, submissions and responses which it is
required to make, or in DAH's reasonable judgment are desirable, in
connection with the transactions contemplated herein pursuant to the
Hart-Scott-Rodino Act, and (ii) all waiting periods applicable under such
Act shall have been terminated.
5.2.4 ESOT MATTERS. The ESOT Trustee shall be independent of all
other parties to this Agreement and shall have relied, in making its
decision whether to enter into this Agreement on behalf of the ESOT, on
the written report of an appraiser who is qualified to value the Stock
and is unrelated to Avtech or any of the parties to this Agreement. The
appraiser's report will be delivered in draft not less than one week
prior to the Closing Date and shall be issued and delivered on the
Closing Date, and which will set forth the appraiser's qualifications,
its determination of the value of the Stock as of the Closing Date and
the factors and methodologies used by the appraiser in making the
appraisal. For purposes of this Section, the Trustee shall be considered
independent of all other parties to this Agreement if it is a bank,
within the meaning of Code Section 581, which is not: (1) directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with any of the other parties to this
Agreement; (2) a partner or employer of any such party; or (3) a
corporation or partnership of which any such party is an officer,
director or partner.
5.2.5 FAIRNESS OPINION. The ESOT Trustee shall have received, in a
form acceptable to the ESOT Trustee, the opinion of the financial advisor
to the ESOT that:
(a) The ESOT is receiving "adequate consideration" (as that term
is defined in the ERISA) for the shares transferred to DAH under the
terms of the "Agreement"; and
(b) The terms of the transaction described in the Agreement, the
Escrow Agreement and Joint Instructions are fair to the ESOT from a
financial point of view.
A full report of the financial advisor's opinion shall be delivered as of
the Closing Date (or as soon as before such Closing Date as practical). Such
report shall document the factors and methodology utilized by the financial
advisor in rendering the opinion. The report shall also set forth the financial
advisor's qualifications to render such an opinion of value and fairness.
6. MISCELLANEOUS PROVISIONS.
6.1 NOTICE. All notices and other communications required or permitted
under this Agreement shall be deemed to have been duly given and made, if in
writing, and (i) if served by personal delivery to the party for whom
intended (which shall include overnight delivery by Federal Express or
similar service), (ii) or 3 business days after being deposited, postage
prepaid, certified or registered mail, return receipt requested, in the
United States mail bearing the address shown in this Agreement for, or such
other address as may be designated by writing hereafter by, such party, or
(iii) if sent by telecopy to the number showing in this Agreement for, or
such other number as may be designated in writing hereafter by, such party
and immediately confirmed by sending a copy of such notice by either method
described in clause (i) or (ii) above.
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If to Shareholders:
Robert Hancock
Avtech Corporation
3400 Wallingford Avenue North
Seattle, WA 98103-9095
Telephone: (206) 634-2540
Fax: (206) 634-3011
with copies to:
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101
Attention: Stephen M. Graham
Telephone: (206) 583-8888
Fax: (206) 583-8500
If to DAH:
DeCrane Aircraft Holdings, Inc.
2361 Rosecrans Avenue, Suite 180
El Segundo, California 90245
Telephone: (310) 725-9123
Fax: (310) 643-0746
and a copy to:
Spolin & Silverman
100 Wilshire Boulevard, Suite 940
Santa Monica, California 90401
Attention: Stephen A. Silverman
Telephone: (310) 576-1221
Fax Number: (310) 576-4844
6.2 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, and the documents referred to herein and therein embody the entire
agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings, oral or written, relative to said subject
matter.
6.3 BINDING EFFECT; ASSIGNMENT. This Agreement and the rights and
obligations arising hereunder shall inure to the benefit of and be binding
upon Avtech, its DAH, its successors and permitted assigns, and the
Shareholders, their heirs, legal representative and permitted assigns.
Neither this Agreement nor any of the rights, interest or obligations
hereunder shall be transferred or assigned (by operation of law or
otherwise) by any of the parties hereto without the prior written consent of
the other party or parties except that DAH shall have the right to (i)
assign, in whole or in part, its rights hereunder to one or more affiliates
of DAH, which in each case shall be a wholly-owned subsidiary of DAH and
(ii) make a collateral assignment of its rights hereunder to the lenders
under its senior credit facility to secure its obligations thereunder. Any
transfer or assignment of any of the rights, interests or obligations
hereunder in violation of the terms hereof shall be void and of no force or
effect.
6.4 CAPTIONS. This Agreement and Section headings of this Agreement
are inserted for convenience only and shall not constitute a part of this
Agreement in construing or interpreting any provision hereof.
6.5 WAIVER; CONSENT. This Agreement may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance),
in whole or in part, except by a writing executed
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by the parties hereto, and no waiver of any of the provisions or conditions
of this Agreement or any of the rights of a party hereto shall be effective
or binding unless such waiver shall be in writing and signed by the party
claimed to have given or consented thereto. Except to the extent that a
party hereto may have otherwise agreed in writing, no waiver by that party
of any condition of this Agreement or breach by the other party of any of
its obligations or representations hereunder or thereunder shall be deemed
to be a waiver of any other condition or subsequent or prior breach of the
same or any other obligation or representation by the other party, nor shall
any forbearance by the first party to seek a remedy for any noncompliance or
breach by the other party be deemed to be a waiver by the first party of its
rights and remedies with respect to such noncompliance or breach.
6.6 NO THIRD PARTY BENEFICIARIES. Nothing herein, expressed or
implied, is intended or shall be construed to confer upon or give to any
person, firm, corporation or legal entity, other than the parties hereto,
any rights, remedies or other benefits under or by reason of this Agreement.
6.7 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be
executed simultaneously in multiple counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and
the same instrument. The signature page of this Agreement when transmitted
by facsimile shall be effective execution and delivery of this Agreement.
6.8 GENDER. Whenever the context requires, words used in the singular
shall be construed to mean or include the plural and vie versa, and pronouns
of any gender shall be deemed to include and designate the masculine,
feminine or neuter gender.
6.9 GOVERNING LAW. This Agreement shall in all respects be constructed
in accordance with and governed by the laws of the State of Delaware. Any
and all disputes arising under or in connection with this Agreement or the
transactions contemplated hereby shall be resolved by binding arbitration
before JAMS/Endispute, which arbitration shall be conducted in Seattle,
Washington in accordance with the rules of JAMS/Endispute.
6.10 TRANSACTION EXPENSES. All of the expenses of the Shareholders
incurred in connection with the transactions contemplated by this Agreement,
including but not limited to the fees of counsel, investment bankers, title
insurance premiums, other investment advisors, accountants (including audit
fees relating to the Audited Financial Statements and the Closing Date
Balance Sheet) and consultants (collectively, the "Shareholder Closing
Expenses"), shall be paid for by the Shareholders. None of the Shareholder
Closing Expenses shall be accrued or paid by Avtech or DAH. The Principal
Shareholders represent and warrant that all of the persons engaged in
connection with the transactions contemplated hereby, to whom Shareholder
Closing Expenses may be payable, have no recourse to Avtech, and that
adequate provision has been made for the payment of all unpaid amounts by
the Paying Agent or the Escrow Agent pursuant to Section 1.2.3 hereof.
6.11 CLOSING DATE. The date on which the transaction shall close (the
"Closing Date") shall be June 26, 1998 unless the conditions in Sections
5.1.6 and 5.1.7 have not been completed, in which case, the Closing shall be
3 business days following the completion of each of the conditions specified
in Sections 5.1.6 and 5.1.7; PROVIDED, HOWEVER, that (i) each of the parties
hereto shall use its best efforts to satisfy each of the conditions
precedent to the Closing Date which is satisfied by the delivery of
documents (other than those to be dated on the Closing Date) no later than
June 24, 1998; and (ii) nothing in this language waives any of the other
closing conditions specified in Section 5.
7. TERMINATION. This Agreement may be terminated by the parties and the
contemplated transactions abandoned at any time prior to closing, as follows:
(a) By the written consent of DAH and Shareholders holding a majority of
the Avtech Common Shares;
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(b) By either DAH or Shareholders holding a majority of the Avtech
Common Shares, upon written notice of all other parties of this Agreement,
at any time after July 31, 1998, if the Closing Date shall not have occurred
by such date; PROVIDED, HOWEVER, that the right to terminate this Agreement
under this paragraph (b) shall not be available to any party which has
intentionally breached this Agreement or whose failure to comply with its
covenants and agreements set forth in this Agreement shall have been the
primary cause of the closing not occurring.
DECRANE AIRCRAFT HOLDINGS, INC.
-----------------------------------------------
By:
Avtech Corporation Employees Stock
Ownership Trust
-----------------------------------------------
By: Its Trustee
-----------------------------------------------
Name
-----------------------------------------------
Title
-----------------------------------------------
John D. Gibson
-----------------------------------------------
Audrey Hancock
-----------------------------------------------
David L. Hancock
-----------------------------------------------
Robert L. Hancock
Leland Stanford Jr. University
Robert Hancock UNITRUST
-----------------------------------------------
By: Its Trustee
-----------------------------------------------
Name
-----------------------------------------------
Jeff Smith
-----------------------------------------------
Gene Zipp
23
<PAGE>
SCHEDULE A
"SHAREHOLDERS"
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---------------------------------------------------------- ----------------------------------
<S> <C>
**Avtech Corporation Employees Stock Ownership Trust...... 163,988.30
** John D. Gibson......................................... 257.40 plus 20,000 options
** Robert L. Hancock...................................... 134,812.60 plus 90,000 options
** Jeff Smith............................................. 20,000 options
** Gene Zipp.............................................. 20,000 options
Audrey Hancock............................................ 1,500
David L. Hancock.......................................... 33.70
Leland Stanford Jr. University Robert Hancock UNITRUST.... 10,000
</TABLE>
- ------------------------
** Designates Principal Shareholder
24
<PAGE>
SCHEDULE B
TO STOCK PURCHASE AND SALE AGREEMENT
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
"Agreement"...................................................................... Preamble
"Avtech"......................................................................... Preamble
"Avtech Common Shares"........................................................... 2.2.2
"Audited Financial Statements"................................................... 2.2.4
"Bid"............................................................................ 2.2.29
"Closing Date"................................................................... 6.11
"Closing Date Balance Sheet"..................................................... 3.1.11
"CERCLA"......................................................................... 2.2.15
"COBRA".......................................................................... 2.2.20
"Commitment"..................................................................... 2.2.28
"DAH"............................................................................ Preamble
"Delivered Financial Statements"................................................. 2.2.4
"Employee Benefit Plan".......................................................... 2.2.20
"ERISA".......................................................................... 2.2.20
"Escrow Agent"................................................................... 1.2.2
"Escrow Agreement"............................................................... 1.2.2
"ESOT"........................................................................... 2.2.20
"ESOT Trustee"................................................................... 2.2.20
"Financial Statements"........................................................... 2.2.4
"Government Contract"............................................................ 2.2.29
"Government"..................................................................... 2.2.29
"Hazardous Substance"............................................................ 2.2.15
"Material Adverse Effect"........................................................ 2.2.5
"Non-Restricted Employees"....................................................... 2.2.5
"Paying Agent"................................................................... 1.2.1
"Permits"........................................................................ 2.2.8
"Principal Shareholders"......................................................... Preamble
"Real Property".................................................................. 2.2.13
"Real Property Leases"........................................................... 2.2.13
"Release"........................................................................ 2.2.15
"Restricted Employee"............................................................ 2.2.5
"Shareholders"................................................................... Preamble
"Shareholder Closing Expenses"................................................... 6.10
"Strategic Alliances"............................................................ 2.2.31
"Transferor"..................................................................... 2.2.29
</TABLE>
25
<PAGE>
EXHIBIT 2.2
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
This Asset Purchase and Sale Agreement ("Agreement") is made and entered
into as of June 12 1998, by and among DeCrane Aircraft Holdings, Inc., a
Delaware corporation ("DAH") and DAHX Acquisitions, Inc., a Delaware corporation
("Buyer") on the one hand, and Dettmers Industries, Inc., a Delaware corporation
("Dettmers"), Peter Dettmers, an individual, and Andrew Perl, an individual (Mr.
Dettmers and Mr. Perl are collectively referred to herein as either the
"Dettmers Shareholders" or "Senior Management") on the other hand, based on the
following facts:
DAH desires to cause Buyer, a wholly owned subsidiary of DAH organized for
the purpose, to purchase, and Dettmers wishes to sell, substantially all of the
assets of Dettmers (with the specific exclusions set forth herein) on the terms
and conditions set forth herein; and
DAH desires to employ certain senior officers of Dettmers specified herein
on the terms and conditions set forth in the form of Employment Agreement
attached as EXHIBIT A hereto (the "Employment Agreements" and, together with
this Agreement and all other agreements and instruments executed and delivered
by one or more parties hereto in connection herewith, the "Transaction
Documents").
Based on the foregoing facts and circumstances, the parties hereby agree as
follows:
1. ASSETS TO BE PURCHASED AND SOLD.
1.1 THE DETTMERS ASSETS. On the Closing Date, Dettmers shall transfer
to Buyer all of the assets, properties, rights (contractual or otherwise)
and business of Dettmers (including but not limited to the goodwill of
Dettmers), whether such assets and business is in the nature of real,
personal, or mixed property and whether such assets are tangible or
intangible or known or unknown (collectively referred to herein as the
"Assets" or the "Property"). Without limiting the generality of the
foregoing, the assets to be transferred include:
1.1.1 REAL PROPERTY. Any and all real property (the "Owned Real
Property"), including that listed on Schedule 1.1.1;
1.1.2 REAL PROPERTY LEASES. Any and all rights under leases of real
property and improvements (the "Real Property Leases"), including that
listed on Schedule 1.1.2 (and all of the real property subject to the
Real Property Leases is referred to herein as the "Leased Real Property",
and together with the Owned Real Property, as the "Real Property");
1.1.3 PERSONAL PROPERTY.
(a) All machinery and equipment (the "Machinery and Equipment")
including that listed on Schedule 1.1.3;
(b) All tooling (the "Tooling"), including that listed on Schedule
1.1.3(b);
(c) All parts and furniture ("Parts and Furniture"); and
(d) All rights under leases of equipment, vehicles or other tangible
personal property (the "Personal Property Leases"), including that listed
on Schedule 1.1.3(d), (and all of the personal property subject to the
Personal Property Leases is referred to herein as the "Leased Personal
Property");
All of the Machinery and Equipment, Tooling, Parts and Furniture, and Leased
Personal Property are referred to collectively herein as "Personal
Property."
1.1.4 VEHICLES. All automobiles and other motor vehicles (the
"Vehicles"), including, without limitation, those listed on Schedule
1.1.4.
1
<PAGE>
1.1.5 APPROVALS. All licenses, permits, consents, authorizations,
approvals, certificates and franchises of any regulatory, administrative
or other government agency (all of which items are referred to as
"Approvals"), including those matters listed in Schedule 1.1.5.
1.1.6 PROPRIETARY RIGHTS.
(a) All patents, inventions, trademarks, names, service marks, trade
names, copyrights, marks, symbols, logos, franchises and permits, and all
applications therefor, registrations thereof and licenses, sublicenses or
agreements in respect thereof, which Dettmers owns or uses or has used or
has the right to use or to which it is a party, and any filing or
registration thereof with any federal, state local or regulatory
authority (the "Protectable Proprietary Rights"), including those listed
on Schedule 1.1.6(a)).
(b) All trade secrets, processes, proprietary knowledge, know-how,
and other processes which are not filed or registered but which
constitute the confidential proprietary information of Dettmers which
Dettmers uses or has used, or has the right to use (the "Confidential
Proprietary Rights").
1.1.7 CONTRACTS. All rights under contracts and agreements (other
than those described in other sections of this Section 1.1) and
specifically including, but not limited to purchase and sales orders,
quotations, executory commitments, instruments, guaranties,
indemnifications, arrangements or other understandings of Dettmers (the
"Contracts"), including, without limitation, those matters listed on
Schedule 1.1.7.
1.1.8 RECEIVABLES. All accounts and notes receivable (the
"Receivables"), including those listed on Schedule 1.1.8.
1.1.9 DEPOSITS AND PREPAID EXPENSES. All of the deposits and
prepaid expenses of Dettmers which relate to or are used in the business
of Dettmers, including without limitation those deposits and prepaid
expenses listed on Schedule 1.1.9 (all of which deposits and prepaid
expenses are referred to as "Deposits" and "Prepaid Expenses").
1.1.10 INVENTORY. All raw materials, supplies, component parts,
work-in-process and finished goods inventory and other inventory (the
"Inventory"), including that listed on Schedule 1.1.10;
1.1.11 TERMINATION CLAIMS. All claims for termination for
convenience or other claims against prime contractors, government
agencies, or others with respect to the termination of contracts prior to
the complete performance by Dettmers of any such contract, including
without limitation such claims as are listed on Schedule 1.1.11, (all of
such matters, including those listed on Schedule 1.1.11, are referred to
as "Termination Claims").
1.1.12 CASH, ETC.. All cash (including in deposit accounts or
similarly liquid investments).
1.1.13 OTHER CLAIMS. All claims, causes of action, demands and
pending litigation in which Dettmers is seeking the recovery of money or
equitable relief (the "Other Claims"), including those matters listed on
Schedule 1.1.13.
1.1.14 BOOKS AND RECORDS. All books of account, customer lists,
files, papers and records normally maintained by Dettmers and a copy of
all of the books of account and records of Dettmers.
1.1.15 TELEPHONE NUMBERS. All telephone, fax, electronic mail and
other numbers for communication with Dettmers, including without
limitation those numbers listed on Schedule 1.1.15.
1.1.16 GOODWILL. All goodwill of Dettmers.
2
<PAGE>
1.2 NON-ASSIGNMENT OF ASSETS. To the extent that any Asset described
in Section 1.1 may not be assigned or may only be assigned with the consent
of a third party, then, notwithstanding anything to the contrary in this
Agreement, neither this Agreement nor any action taken shall constitute an
assignment or an agreement to assign such Asset; PROVIDED, HOWEVER, that in
such case Dettmers will use its best efforts to obtain the consent of such
party to the assignment to Buyer. If such consent is not obtained, Dettmers
shall provide to Buyer the benefits of such Asset or a comparable asset in
its place as a condition to the obligations of DAH and Buyer hereunder.
2. PURCHASE PRICE. The price for the Assets (the "Purchase Price"), shall
be the amount determined pursuant to this Section 2 payable to Dettmers, or its
permitted assigns, as follows:
2.1 Subject to adjustment as provided in Section 2.2, $2,200,000 of
the Purchase Price shall be payable as follows: (i) $100,000 shall be paid
in immediately available funds upon the execution of this Purchase
Agreement; and (ii) $2,100,000 shall be paid in immediately available funds
on the first business day on or after June 29, 1998 after all conditions in
Section 6.2 have been satisfied or waived (which date is estimated to be
June 30, 1998), (the actual date is referred to as the "Closing Date").
2.2 The $2,100,000 amount payable on the Closing Date under Section
2.1 is subject to reduction as follows: (a) to the extent that the Assets
are encumbered by indebtedness or other liens (other than accounts payable
to trade creditors for goods and services incurred in the ordinary course of
Dettmers' business and consistent with Dettmers' current practices for
payment of trade creditors), the payment shall be reduced by the aggregate
value of such indebtedness or liens; and (b) to the extent that
shareholders' equity in Dettmers at the Closing Date is less than
shareholders' equity reported on the December 31, 1997 preliminary balance
sheet of Dettmers previously delivered to DAH, the payment shall be reduced
in a corresponding amount.
2.3 On March 31 of each of the years 2000, 2001, 2002 and 2003, DAH
shall pay an additional $500,000, IF as of such date the Attributed EBITDA
(as defined below) for the year ended the prior December 31 is not less than
$650,000 (for 1999), $800,000 (for 2000), $1,000,000 (for 2001) and
$1,200,000 (for 2002). To the extent that the Attributed EBITDA for any such
year is less than the foregoing target amounts specified, but exceeds 90% of
such amount, Dettmers shall be paid a PRO RATA portion of the amount so
specified for such year. No payment shall be made in respect of any such
year for which the Attributed EBITDA is equal to or less than 90% of the
foregoing target amounts. The payments contemplated by this Section 2.3 are
not contingent on the continued employment of the Dettmers Shareholders by
Buyer.
As used herein the term "EBITDA" means 'Earnings 'Before Interest and
Tax ("EBIT"), adding back to EBIT, (i) Depreciation, and (ii) Amortization
(including without limitation all amortization of intangibles related to the
acquisition of the Assets and all financing costs of the acquisition of the
Assets). In determining EBITDA, no management fee or other charge shall be
imposed by DAH. As used herein "Attributed EBITDA" means for any calendar
year listed in Section 2.3, the EBITDA attributable to the Assets and
included in the consolidated income statement of DAH for such year, which
calculation shall be reviewed by the independent certified public accountant
which renders the opinion on the financial statement of DAH for such year.
The terms EBIT, Depreciation and Amortization are as defined in GAAP.
In the event DAH requires the operations of Buyer after the Closing to
undertake a project which, as a result of the lead time between R&D
expenditure and expected revenue, will have a material adverse impact on
EBITDA, the parties shall negotiate in good faith until they have reached an
agreement with respect to a credit, if any, to the calculation EBITDA for
the payments to be made pursuant to this Section 2.3.
DAH and the Buyer shall record the purchase of the Property as net
assets including goodwill.
3
<PAGE>
3. REPRESENTATIONS AND WARRANTIES.
3.1 JOINTLY BY BUYER AND DAH. Buyer and DAH hereby jointly and
severally represent and warrant to Dettmers that the representations and
warranties of Buyer and DAH, and either of them, contained in this
Agreement, including those contained in this Section 3.1, are correct and
complete as of the date of this Agreement and will be correct and complete
as of the Closing Date. Buyer and DAH hereby jointly and severally represent
and warrant to Dettmers the following:
3.1.1 ORGANIZATION. Buyer and DAH are both Corporations duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and each have all requisite corporate power and
authority to own, lease and operate their respective properties and
conduct their respective businesses as now being conducted. Buyer and DAH
are each duly qualified, or will be duly qualified prior to the Closing
Date, to do business and in good standing in each jurisdiction listed on
Schedule 3.1.1, are not qualified to do business in any other
jurisdiction and neither the nature of the business conducted by either
of them, nor the property either of them owns, leases or operates,
requires either of them to qualify to do business as a foreign
corporation in any other jurisdiction. Buyer and DAH have previously
delivered to Dettmers complete and correct copies of Buyer's and DAH's
articles of incorporation and bylaws as in effect on the date hereof.
3.1.2 AUTHORIZATION. Buyer and DAH each have all requisite
corporate power and authority to enter into this Agreement and each of
the Employment Agreements to which either is a party, perform their
respective obligations hereunder and thereunder and consummate the
transactions contemplated hereby and thereby. All necessary corporate
action has been taken by Buyer and DAH with respect to the execution and
delivery of this Agreement, and the Employment Agreements to which either
of them is a party, and this Agreement and such Employment Agreements to
which either of them is a party, constitute valid and binding obligations
of Buyer and DAH, enforceable against Buyer and DAH, as the case may be,
in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance and
moratorium laws and other laws of general application affecting the
enforcement of creditors' rights generally.
3.1.3 BROKERS AND FINDERS. Except as disclosed in Schedule 3.1.3,
neither Buyer, DAH nor any of their officers, directors, employees or
agents (the "Purchasing Parties"), has engaged any broker or finder or
incurred any liability for any brokerage fees, commissions, finders' fees
or similar fees or expenses and no broker or finder has acted directly or
indirectly for the Purchasing Parties in connection with this Agreement
or the transactions contemplated hereby. All of such fees, commissions or
other liabilities incurred by the Purchasing Parties in connection with
the transactions contemplated hereby shall be the sole responsibility of
DAH.
3.2 BY DETTMERS AND SENIOR MANAGEMENT. Dettmers and Senior Management
hereby represent and warrant to Buyer and DAH that the representations and
warranties of Dettmers and Senior Management contained in this Agreement,
including those contained in this Section 3.2, are correct and complete as
of the date of this Agreement and will be correct and complete as of the
Closing Date. As used in this Section 3.2, references to the "Senior
Management's Knowledge" means the knowledge of Peter Dettmers and Andrew
Perl. Dettmers and Senior Management hereby represent and warrant to Buyer
and DAH the following:
3.2.1 ORGANIZATION. Dettmers is a corporation duly organized
validly existing and in good standing under the laws of the State of
Delaware. Dettmers has all requisite corporate power and authority to
own, lease and operate its respective properties and conduct its business
as now being conducted, and is duly qualified to do business and in good
standing in each jurisdiction listed on Schedule 3.2.1, is not qualified
to do business in any other jurisdiction, and neither the nature of the
business conducted by it nor the property it owns, leases or operates
requires it to
4
<PAGE>
qualify to do business as a foreign corporation in any other
jurisdiction. Dettmers has previously delivered to Buyer complete and
correct copies of the articles of incorporation and by-laws of Dettmers,
as in effect on the date hereof, and Dettmers is not in default in the
performance, observation or fulfillment of any provision of their
respective organizational documents.
3.2.2 CAPITALIZATION AND SECURITY HOLDERS. The authorized capital
stock of Dettmers consists solely of 3000 shares of Common Stock, $0.01
par value ("Common Shares"); Dettmers has issued 168 Common Shares, of
which 168 Common Shares are outstanding, constituting all of the issued
and outstanding shares of capital stock of any class of Dettmers. All
outstanding Common Shares have been validly issued and are fully paid and
non-assessable and free of preemptive rights. All of the ownership
interests in Dettmers are owned by the persons listed in Schedule 3.2.2.
3.2.3 AUTHORIZATION OF DETTMERS. Dettmers has full corporate power
and authority to enter into this Agreement and each of the other
Transaction Documents to which it is a party, perform its obligations
hereunder and thereunder and consummate the transactions contemplated
hereby and thereby. All necessary and appropriate corporate action has
been taken by Dettmers with respect to the execution and delivery of this
Agreement, and the other Transaction Documents to which it is a party.
This Agreement constitutes, and the other Transaction Documents to which
Dettmers is party when executed and delivered will constitute, valid and
binding obligations of such party, enforceable against each such party in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance and moratorium laws and
other laws of general application affecting the enforcement of creditors'
rights generally.
3.2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 3.2.4(a)
are (i) the balance sheets of Dettmers as at December 31, 1995, 1996 and
1997 and as at March 31, 1998, and (ii) the related statements of income
for the years ended December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1998 (all of such documents referred to collectively as
the "Financial Statements"). The Financial Statements dated as of March
31, 1998 either (a) reflect the equivalent of any adjustments made in the
Financial Statements dated as of December 31, 1997 or (b) have footnote
disclosure to reflect the absence of such adjustments and the dollar
amount of such adjustments had they been made. The Financial Statements
(i) are true, correct and complete, subject to the qualifications (if
any) explicitly set forth therein and in Schedule 3.2.4(b), (ii) have
been prepared from and are in accordance with the books and records of
Dettmers, (iii) have been prepared using an accrual basis method and
average cost inventory cost flow assumptions, (iv) are in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis for such periods subject to the qualifications (if any) explicitly
set forth therein and in Schedule 3.2.4(b), and (v) fairly present in all
material respects the financial position of Dettmers as of the dates
stated and the results of operations of Dettmers for the periods then
ended in accordance with such practices, subject to the qualifications
(if any) explicitly set forth therein and in Schedule 3.2.4(b). On the
date of this Agreement and on the Closing Date, Dettmers has no material
contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as reflected or provided for in the
balance sheets in the Financial Statements, subject to the qualifications
(if any) explicitly set forth therein and in Schedule 3.2.4(b) or, if not
required by GAAP to be so reflected, in Schedule 3.2.4(b). Since December
31, 1997, except as described on Schedule 3.2.4, there has been no
material adverse change in the financial condition, operations, business
or prospects taken as a whole of Dettmers from that set forth in the
Financial Statements dated as of December 31, 1997.
5
<PAGE>
3.2.5 COMPLIANCE WITH LAW.
(a) Dettmers is in compliance in all material respects with all
applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated, or judgments, decisions or orders entered, by any
federal, state, local or foreign court or governmental authority or
instrumentality, the violation of which would be materially adverse to
Dettmers or its businesses or properties.
(b) Dettmers is compliance in all material respects with all federal,
state and local laws, ordinances, rules and regulations pertaining to
environmental matters, including solid waste disposal, toxic substances,
hazardous substances, hazardous materials, hazardous waste, toxic
chemicals, pollutants, contaminants and air or water pollution and to the
storage, use, handling, transportation, discharge and disposal (including
spills and leaks) of gaseous, liquid, semi-solid or solid materials.
Neither Dettmers nor, to Senior Management's Knowledge, any third party
has disposed or discharged any chemicals, oil or solid wastes on any part
of the Real Property or on any other property owned, operated, leased or
used by Dettmers. There are no underground storage tanks located on any
part of the Real Property or any other property owned, operated, leased
or used by Dettmers, except as disclosed on Schedule 3.2.5(b).
(c) Schedule 3.2.5(c) contains a complete and accurate list of all
material Permits. Each of such Permits is currently valid and in full
force and effect and assignable to Buyer, and the closing of and the
transactions contemplated by this Agreement will not result in the
termination of any Permit. Such Permits listed on such schedule
constitute all material franchises, licenses, permits, consents,
authorizations, approvals, and certificates of any regulatory,
administrative or other agency or body necessary for the conduct of the
business of Dettmers. Dettmers is not in violation of any of such Permits
and there is no pending or threatened proceeding which could result in
the revocation, cancellation or inability of Dettmers to renew or
transfer any such Permit which is material to its business. Without
limiting the foregoing, no consents, authorizations, approvals or similar
agreements or acquiescence is required from any issuer or regulator of
any Permit to any of the transactions contemplated hereby, except to the
extent listed on Schedule 3.2.5(c).
(d) To Senior Management's Knowledge, except as set forth in Schedule
3.2.5(d), Dettmers is not under investigation with respect to, or is
currently subject to a charge of, or under notice of any violation of,
any applicable law.
3.2.6 PROPRIETARY RIGHTS. The sale by Dettmers contemplated hereby,
ownership by Buyer of any of the Assets and, to Senior Management's
Knowledge, the business of Dettmers as conducted prior to the Closing
Date, except as disclosed on Schedule 3.2.6, was not, is not and will not
infringe or be in contravention of any trade name, service mark, patent,
trademark, copyright or other proprietary right of any third party.
Schedule 3.2.6 sets forth all of the Proprietary Rights and Registrations
owned or used by Dettmers. None of the Proprietary Rights are registered
with any governmental or regulatory authority except as set forth on
Schedule 3.2.6.
The amount of each of the royalties and license fees presently paid
by or on behalf of Dettmers in the ordinary course of its business is
listed in Schedule 3.2.6.
3.2.7 RESTRICTIVE DOCUMENTS OR LAWS. With the exception of the
matters listed on Schedule 3.2.7, Dettmers is not bound under any (and,
to Senior Management's Knowledge, there is no) pending, proposed or
threatened regulation, certificate, mortgage, lien, lease, agreement,
contract, instrument, law, vote, order, judgment or decree, or any
similar restriction not of general application which materially restricts
or otherwise adversely affects, or reasonably could be expected to
materially restrict or otherwise adversely to affect (a) the consummation
of the transfers of the Assets to Buyer and the other transactions
contemplated in this Agreement or (b) in any material respect: (i) the
condition, financial or otherwise, of Dettmers or any material
6
<PAGE>
part of the Assets; or (ii) the continued operation by Buyer of the
business of Dettmers after the
Closing Date on substantially the same basis as said business was
theretofore operated.
3.2.8 REAL PROPERTY. Schedule 3.2.8 contains complete and accurate
legal descriptions of each parcel of Real Property and a list of all Real
Property Leases identifying the Leased Real Property leased thereunder;
and Dettmers owns, leases, uses or licenses no real property interests
other than as are listed on such schedule. The Real Property includes all
such interests now owned or used by Dettmers and material to the
operation of its business as presently conducted. All such properties are
held free and clear of all mortgages, pledges, liens, security interests
and encumbrances, and material restrictions of any nature whatsoever,
except as listed on Schedule 3.2.8.
Except as set forth in Schedule 3.2.8, all real property and each
building and structure owned or used by Dettmers, and material to the
operation of its business as presently conducted, is suitable for the
purpose or purposes for which it is being used, and is in all material
respects in such condition and repair as to permit the continued
operation of said business. To Senior Management's Knowledge, none of
such real property, buildings or structures is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs. To Senior
Management's Knowledge, there are no material structural defects in the
exterior walls or the interior bearing walls, the foundation or the roof
of any plant, building, garage or other such structure owned, leased or
used by Dettmers and the electrical, plumbing and heating systems, and
the air conditioning system, if any, of any such plant, building, garage
or structure are in reasonable operating condition in light of their age
and prior use. To Senior Management's Knowledge, the utilities servicing
the real property owned, leased or used by Dettmers are adequate to
permit the continued operation of the business of Dettmers and to Senior
Management's Knowledge, there are no pending zoning, condemnation or
eminent domain proceedings, building, utility or other moratoria, or
injunctions or court orders which would materially effect such continued
operation. Schedule 3.2.8 lists, and Dettmers has furnished or made
available to Buyer copies of, all engineering, geologic and environmental
reports prepared by or for Dettmers with respect to the real property
owned, leased or used by Dettmers.
3.2.9 PERSONAL PROPERTY. Schedule 3.2.9 contains complete and
accurate descriptions of, Dettmers' Machinery, Equipment, Tooling and
Vehicles. Except as set forth in Schedule 3.2.9, and except with respect
to personal property leased pursuant to the Personal Property Leases,
Dettmers has good, valid and marketable title to all of its property
which is personal property of every kind, nature and description,
tangible or intangible, and wherever located, including all property and
assets which are personal property shown or reflected on the March 31,
1998 Balance Sheet. Schedule 3.2.9 contains a complete and accurate
description of all Personal Property Leases to which Dettmers is party or
which Dettmers uses in its business. The Property which is personal
property constitutes all material personal property now used in and
necessary for the conduct of the business of Dettmers as presently
conducted, all of which is held free and clear of all mortgages, pledges,
liens, security interests, encumbrances and material restrictions of any
nature whatsoever, except as listed on Schedule 3.2.9.
Except as listed on Schedule 3.2.9, no financing statement under the
Uniform Commercial Code or similar law naming Dettmers as debtor has been
filed in any jurisdiction, and Dettmers is not a party to or bound under
any agreement or legal obligation authorizing any party to file any such
financing statement. Except as set forth on Schedule 3.2.9, all Machinery
and Equipment and other tangible personal property owned or used by
Dettmers and material to the operation of the business as presently
conducted is suitable for the purpose or purposes for which it is being
used, and is in all material respects in such condition and repair as to
permit the continued operation of said business. None of the Machinery or
Equipment is in need of maintenance or
7
<PAGE>
repairs in any material respect except for ordinary, routine maintenance
and repairs necessary to permit the operation of said business.
3.2.10 ENVIRONMENTAL MATTERS. Except as set forth on Schedule
3.2.10, the operations of Dettmers meet the requirements of all
occupational health and safety acts and all environmental laws and
regulations of all federal, state and local governmental or regulatory
bodies having jurisdiction over Dettmers. Without limiting the generality
of the foregoing, and by way of example only, except as set forth on
Schedule 3.2.10:
(a) There has not been, and is not occurring, any Release of any
Hazardous Substance on any real property owned, operated, leased or used
by Dettmers. For purposes of this Agreement, the terms "Release" and
"Hazardous Substance" shall have the same meanings as those terms are
given in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), except
that for purposes of this Agreement petroleum (including crude oil or any
fraction thereof) shall be deemed a Hazardous Substance.
(b) Dettmers has not ever sent a Hazardous Substance to a site which,
pursuant to CERCLA or any similar state law, (A) has been placed, (or to
Senior Management's Knowledge, is proposed to be placed, or may in the
future be placed,) on the "National Priorities List" of hazardous waste
sites or on any similar list of any federal, state or local governmental
agency, including the Comprehensive Environmental Response, Compensation
and Liability System list for potential hazardous waste sites, or (B) is
subject to a claim, an administrative order or other request to take
"removal" or "remedial" action (as defined under CERCLA) or to pay for
any costs relating to such site.
(c) Dettmers has not ever been or is currently in violation of any
provision of the Toxic Substances Control Act or the regulations
promulgated thereunder.
(d) Dettmers is not involved in any suit or has received notice of
any claim relating to personal injuries from exposure to Hazardous
Substances.
3.2.11 BROKERS, FINDERS. Except as disclosed on Schedule 3.2.11,
(a) the transactions contemplated herein were not submitted to Dettmers
nor any of its officers, directors, employees or Shareholders or their
respective agents (the "Selling Parties") by any broker or other person
entitled to a commission or finder's fee thereon, and were not with the
consent of the Selling Parties submitted to DAH by any such broker or
other person; (b) none of the Selling Parties has engaged any broker or
finder or incurred or taken any action which may give rise to any
liability against Dettmers or the Property for any brokerage fees,
commissions, finders fees or similar fees or expenses, and no broker or
finder has acted directly or indirectly for the Selling Parties in
connection with this Agreement or the transactions contemplated hereby;
and (c) no investment banking, financial advisory or similar fees have
been incurred or are or will be payable by the Selling Parties in
connection with this Agreement or the transactions contemplated hereby.
All of such fees, commissions or other liabilities incurred by any of the
Selling Parties in connection with the transactions contemplated hereby
shall be the sole responsibility of the Dettmers Shareholders; and none
of the Assets of Dettmers have been or shall be applied to pay the same.
3.2.12 LEGAL PROCEEDINGS, ETC. Except as set forth on Schedule
3.2.12, there is no claim, litigation, action, suit or proceeding,
administrative or judicial, filed, pending, or to Senior Management's
Knowledge, threatened against Dettmers, or involving the Assets, this
Agreement or the transactions contemplated hereby, at law or in equity,
before any federal, state or local court or regulatory agency, or other
governmental authority, including any unfair labor practice or grievance,
proceedings or claim, which although disclosed on Schedule 3.1.12 would
have a material adverse effect on the business or assets of Dettmers. To
Senior Management's knowledge, there is no basis upon which such claim,
litigation, action, suit or proceeding would
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reasonably be brought or initiated. Except as set forth in Schedule
3.2.12, Dettmers is not subject to any judgment, order or decree, or, to
Senior Management's Knowledge, any governmental restriction applicable to
Dettmers which has a reasonable probability of having a Material Adverse
Effect. As used herein, "Material Adverse Effect" means any material
adverse change in the business operations (as presently conducted or
proposed to be conducted), assets, properties or rights, prospects or
condition (financial or otherwise) of Dettmers, or any occurrence,
circumstance, or combination thereof which reasonably could be expected
to result in any such material adverse change, or which materially
adversely affects the ability of Dettmers to conduct business in any
area, or of Buyer to continue the business of Dettmers as presently
conducted.
3.2.13 NO CONFLICT OR DEFAULT. Neither the execution and delivery
of this Agreement or any other Transaction Document, nor compliance with
the terms and provisions hereof or thereof, including the consummation of
the transactions contemplated hereby and thereby, will (a) violate in any
material respect any statute, regulation or ordinance of any governmental
authority, or (b) conflict with or result in the breach of any term,
condition or provision of the articles of incorporation or bylaws of
Dettmers, or (c) to Senior Management's Knowledge, conflict with or
result in the breach of any term, condition or provision of any
agreement, deed, contract, mortgage, indenture, writ, order, decree,
legal obligation or instrument, to which Dettmers is a party or by which
such party or any part of the Assets are or may be bound, or (d)
constitute a material default (or an event which with the lapse of time
or the giving of notice, or both, would constitute a material default)
under any such agreement, deed, contract, mortgage, indenture, writ,
order, decree, legal obligation or instrument thereunder, or (e) result
in the creation or imposition of any material lien, charge or
encumbrance, or to Senior Management's Knowledge, any other material
restriction of any nature whatsoever with respect to any part of the
Property, or (f) give to others any interest or rights, including rights
of termination, acceleration or cancellation in or with respect to any
part of the Property or the business of Dettmers which would have a
Material Adverse Effect thereon.
3.2.14 LABOR RELATIONS. Schedule 3.2.14 sets forth all collective
bargaining or other labor agreements to which Dettmers is bound and which
covers Dettmers employees. Dettmers has previously delivered to Buyer
true, correct and complete copies of each such agreement. There is no
labor strike, dispute, slowdown or stoppage, or petition for
certification actually pending or, to Senior Management's Knowledge,
threatened against or involving Dettmers, nor, to Senior Management's
Knowledge, any union organizing campaign pending or threatened. Schedule
3.2.14 sets forth all pending grievances and arbitration proceedings
against Dettmers arising out of or under a collective bargaining or other
labor agreement. No collective bargaining or other labor agreement is
currently being negotiated by or on behalf of Dettmers. With respect to
the business of Dettmers, Dettmers has not experienced any work stoppage
or other material labor difficulty over the past three years. Except for
the employment contract with Pam Courtnery there is no obligation of
Dettmers to any employee or any person employed by Staff Leasing assigned
to Dettmers except for an "at will" relationship. No agreement which is
binding on Dettmers restricts it from relocating or closing any or all of
its operations.
3.2.15 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Schedule 3.2.15, Dettmers does not
currently sponsor, maintain or contribute to, nor within the past 3 years
sponsored, maintained or contributed to, any pension, retirement,
profit-sharing, deferred compensation, bonus, stock option or other
incentive plan, or any other employee benefit program, arrangement,
agreement or understanding, or medical, vision, dental or other health
plan, or life insurance or disability plan, or any other employee benefit
plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not any such
employee benefit plan is otherwise exempt from the provisions of ERISA,
and whether or not formal or informal, written or oral, and whether or
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not legally binding. All such plans are fully funded through the date of
this Agreement or amounts sufficient to fully fund contributions to such
plans through the Closing Date are reserved for in the March 31, 1998
Financial Statements. All such plans, funds or programs sponsored,
maintained or contributed to by Dettmers currently or within the past 3
years, whether or not listed on Schedule 3.2.15, are hereinafter referred
to as the "Employee Benefit Plans"). For the purpose of this Section
3.2.15, the term "Dettmers" shall include all "entities" of Dettmers,
whether or not incorporated, with which it would be treated as a single
employer for purposes of Sections 414(b), (c) or (m) of the Internal
Revenue Code (the "Code").
(b) As of the Closing Date, no entity that may be regarded as under
common control with Dettmers pursuant to Section 414 of the Code shall
have incurred any unsatisfied liability under Title IV of ERISA or
Section 4980 of the Code, nor shall any such entity have become subject
to a lien pursuant to Section 412(n) of the Code.
(c) Full payment has been made of all amounts which Dettmers is
required, under applicable law or under any Employee Benefit Plan or any
agreement relating to any Employee Benefit Plan to which it is a party,
to have paid as contributions to, or benefits under, any Employee Benefit
Plan as of the last day of the most recent fiscal year of such Employee
Benefit Plan ended prior to the date hereof. Dettmers has made adequate
provision in its financial statements for liabilities to meet current
contributions or benefit payments.
(d) Dettmers has performed all obligations required to be performed
by it under the Employee Benefit Plans. Dettmers has not engaged in any
transaction with respect to the Employee Benefit Plans which would
subject it, Buyer or DAH to a tax, penalty or liability for a prohibited
transaction under section 406, 407 or 502(i) of ERISA or Section 4975 of
the Code, nor have any of Dettmers' directors, officers, partners,
employees or agents, to the extent they or any of them are fiduciaries
with respect to such Employee Benefit Plans, breached any of their
responsibilities or obligations imposed upon fiduciaries under Title I of
ERISA or which would result in any claim being made under or by or on
behalf of any such Employee Benefit Plans by any party with standing to
make such claim. Dettmers will not have any plan or commitment, whether
formal or informal, written or oral, and whether or not legally binding,
to modify or change any Employee Benefit Plan in any material manner
prior to the Closing Date. Dettmers and any "administrator(s)" (as
described in Section 3(16)(A) of ERISA) of the Employee Benefits Plans
have complied in all material respects with the applicable requirements
of ERISA, the Code and all other statutes, orders, rules or regulations,
specifically including material compliance with all reporting and
disclosure requirements of Part 1 of Title 1 of ERISA and of the Code in
a timely and accurate manner, and no penalties have been or will be
imposed, nor is Dettmers or any administrator liable for any penalties
imposed, under ERISA, the Code or otherwise with respect to the Employee
Benefit Plans or any related trusts. Dettmers is not delinquent in the
payment of any federal, state or local taxes with respect to the Employee
Benefit Plans. There is no pending litigation, arbitration, or disputed
claim, settlement adjudication or proceeding with respect to the Employee
Benefit Plans, and neither Dettmers nor any administrator is aware of any
threatened litigation, arbitration or disputed claim, adjudication
proceeding, or any governmental or other proceeding, or investigation
with respect to the Employee Benefit Plans or with respect to any
fiduciary or administrator thereof (in their capacities as such), or any
party-in-interest thereto (with respect to their relationship as such).
There is no "defined benefit plan" within the meaning of Section 414(j)
of the Code or Section 3(35) of ERISA to which Dettmers has been a party
or has been required to make any contributions at any time during the
last ten years. There is no "multiemployer plan" within the meaning of
Section 3(37) of ERISA to which Dettmers has been a party or has been
required to make any contributions at any time during the last ten years.
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(e) Dettmers has delivered or caused to be delivered to Buyer and DAH
prior to the Closing, true, accurate and complete copies of (A) all
Employee Benefit Plans and any related trust agreements, custodial
agreements, investment management agreements, insurance contracts or
policies, and administrative service contracts, all as in effect,
together with all amendments thereto which will become effective at a
later date; (B) the latest Summary Plan Description and any modifications
thereto for each Employee Benefit Plan requiring same under ERISA; (C)
the Summary Annual Report for the current and prior fiscal years for each
Employee Benefit Plan requiring same under ERISA; (D) each Form 5500
and/or Form 990 series filing (including required schedules and financial
statements) for the current and prior fiscal years for each Employee
Benefit Plan required to file such form; and (E) the most recent
actuarial evaluation, analysis or other report issued with respect to any
Employee Benefit Plan. Neither Dettmers nor any officer, partner,
employee, representative or agent of Dettmers has made any written or
oral representations or statements to any current or former employees,
dependents, participants or beneficiaries or other persons which are
inconsistent in any material manner with the provisions of these
documents.
(f) With respect to any of Dettmers' employee welfare plans (as
defined in Section 3(1) of ERISA and including those Employee Benefits
Plans which qualify as such) which are "group health plans" under Section
4980B of the Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by the Consolidated
Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as amended to date),
there has been timely compliance in all material respects with all
requirements imposed thereunder, as and when applicable to such plans, so
that Dettmers has not (nor will incur any) loss, assessment, penalty,
loss of federal income tax deduction or other sanction, arising on
account of or in respect of any failure to comply with any COBRA benefit
continuation requirement, which is capable of being assessed or asserted
directly or indirectly against such party, or against Buyer or DAH or any
of their respective subsidiaries or other member of Buyer's corporate
control group, with respect to any such plan. Dettmers has no obligation
to provide medical benefits to any former employee, except as required by
COBRA.
(g) No Employee Benefit Plan maintained by Dettmers which is a
"welfare plan" within the meaning of Section 3(1) of ERISA provides
benefits to employees after termination of employment, except as required
by Section 4980B of the Code.
3.2.16 CONTRACTS AND COMMITMENTS. Schedule 3.2.16 is a list of all
of the Contracts to which Dettmers is a party and which involve the
payment by or to Dettmers in the aggregate of $50,000 or more (per
contract) during any year. Dettmers has previously delivered to Buyer
correct and complete copies of each such Contract. The Real Property
Leases, the Personal Property Leases and the Contracts listed on Schedule
3.2.16, taken together, constitute all of the contracts, agreements,
contract rights, leases, license agreements, franchise rights and
agreements, policies, purchase and sales orders, quotations and executory
commitments, instruments, guaranties, indemnifications, arrangements,
obligations and understandings (written or oral), involving the payment
by or to Dettmers, in the aggregate of $50,000 or more (per contract)
during any year, necessary to the conduct of the business of Dettmers as
presently conducted.
All of the Real Property Leases, the Personal Property Leases and the
Contracts are valid and binding, in full force and effect and enforceable
against Dettmers in accordance with their respective provisions. Dettmers
has not assigned, mortgaged, pledged, encumbered, or otherwise
hypothecated any of its right, title or interest under any Real Property
Lease, any Personal Property Lease, or any Contract. Neither Dettmers
nor, to Senior Management's Knowledge, any other party thereto is in
material violation of, in default in respect of, nor has there occurred
an event or condition which, with the passage of time of giving of notice
(or both) would constitute a material violation or default of, any Real
Property Lease, any Personal Property Lease, or any
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Contract, and, to Senior Management's Knowledge, there are no facts or
circumstances which would reasonably indicate that Dettmers (or any other
party) will be or may be in material violation of or in default in
respect of any Real Property Lease, any Personal Property Lease, or any
Contract, subsequent to the date hereof. Without limiting the foregoing,
no consents, authorizations, approvals or similar agreements or
acquiescence is required from any party under any Contract, Real Property
Lease or Personal Property Lease to any of the transactions contemplated
hereby, except to the extent listed on Schedule 3.2.16 hereof, and each
of such consents will be delivered to DAH on the Closing Date. No notice
has been received by Dettmers claiming any such default or indicating the
desire or intention of any other party thereto to amend, modify, rescind
or terminate the same to the extent that it would have a Material Adverse
Effect on the business or assets of Dettmers.
3.2.17 ACCOUNTS RECEIVABLE, ETC.. All of the Receivables of
Dettmers are set forth on Schedule 3.2.17, together with the value
thereof. All such Receivables and Prepaid Expenses, together with any
additional Receivables and Prepaid Expenses arising between the date
hereof and the Closing Date (in each case net only of such allowances for
doubtful accounts as are disclosed on the March 31, 1998 Balance Sheet),
(a) are or will be valid and subsisting, (b) represent or will represent
sales actually made, (c) arose or will arise in the ordinary and usual
course of the business of Dettmers, (d) except as set forth on Schedule
3.2.17, to the extent not collected prior to the Closing Date, will be
due and enforceable according to their terms within 90 days after the
date of the initial invoice therefor, and (e) are not and (except as may
be caused by Buyer) will not be subject to any material counterclaim,
set-off, defense, lien, charge or encumbrance of any nature. There has
not been any material adverse change in the collectibility of the
Receivables of Dettmers since March 31, 1998. Buyer will use diligent
efforts to collect the Receivables.
3.2.18 INVENTORIES. Schedule 3.2.18 completely and accurately lists
all raw materials, supplies, parts, work-in-process, and finished goods
inventory and other inventory owned by Dettmers and the accurate cost of
such inventory as of March 31, 1998. Except as set forth in Schedule
3.2.18 and except for amounts which in the aggregate are not material,
all such inventories (i) consist of a quality and quantity usable and
saleable in the ordinary and usual course of business, except for items
of obsolete materials and materials of substandard quality, all of which
have been written off or written down on the books of Dettmers to net
realizable value prior to March 31, 1998 and (ii) have been priced at the
lower of cost or market on a FIFO basis. The quantities of all material
portions of each type of inventory (whether raw materials, work-in-
process, or finished goods) are not excessive, but are reasonable and
warranted in the present circumstances of Dettmers; and all material
portions of work-in-process and finished goods inventory is free of any
material defect or other deficiency.
3.2.19 BACKLOG. All unfilled orders to purchase goods and services
of Dettmers are set forth in Schedule 3.2.19 and are firm and binding
commitments (subject to cancellation rights set forth therein) of the
respective purchasers (assuming that each such purchaser has properly
authorized the same by all requisite acts and has properly executed and
delivered a purchase order, which assumption, to Senior Management's
Knowledge, is the case) to purchase the goods or services indicated.
3.2.20 BOOKS OF ACCOUNT: RECORDS. Except for the qualifications (if
any) explicitly set forth therein or in Schedule 3.2.20 the general
ledgers, books of account and other financial records of Dettmers are
complete and correct, have been maintained in accordance with good
business practices, and the matters contained therein are appropriately
and accurately reflected in the Financial Statements.
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3.2.21 MANAGERS, EMPLOYEES AND COMPENSATION. Schedule 3.2.21 sets
forth the name of all managers and engineers of Dettmers, their
respective terms of office, the total salary, bonus payments, fringe
benefits and perquisites each received in each of the calendar years
ending December 31, 1995, 1996 and 1997 (or, if briefer, during their
tenure of employment with Dettmers and any affiliate thereof), and
changes to the foregoing which have occurred since December 31, 1997,
together with the professional background of each manager and engineer
for the last 5 years (as disclosed to Dettmers by such employee and, to
Senior Management's Knowledge, correctly and completely); such Schedule
also lists and describes the current base salary, bonus payments, fringe
benefits and perquisites of any other employee, agent or representative
of Dettmers whose total current salary, bonus or other compensation
exceeds $50,000 annually during any of the calendar years ending December
31, 1995, 1996 or 1997, and changes to the foregoing since December 31,
1997. There are no other material forms of compensation paid to any such
director, officer or employee of Dettmers. The provisions for wages and
salaries accrued on the March 31, 1998 Balance Sheet are adequate for
salaries and wages, including accrued vacation pay, for the period up
through the date thereof, and Dettmers has accrued on its books and
records all obligations to pay wages and salaries and other compensation
to its employees, including, but not limited to, vacation pay and sick
pay, and all commissions and other fees payable to agents, salesmen and
representatives. Dettmers has filed any and all payroll tax returns, and
paid all payroll taxes due for any and all employees due through the
Closing Date.
Except as set forth on Schedule 3.2.21, Dettmers has not become
obligated, directly or indirectly, to any shareholder, director, officer
or partner of Dettmers or any member of their families, except for
current liability for employment compensation. Except as set forth on
Schedule 3.2.21, no shareholder, director, officer, partner, agent or
employee of Dettmers holds any position or office with or has any
financial interest, direct or indirect, in any supplier, customer or
account of, or other outside business which has transactions with
Dettmers. Neither Dettmers nor, to Senior Management's Knowledge, any
third party, has taken any action with respect to any shareholder,
director, officer, partner, employee or representative of Dettmers to
attempt to induce or which would influence any such person not to become
associated with Buyer from and after the Closing Date or from serving
Buyer in a capacity similar to the capacity presently held. Except to the
extent as may have been previously disclosed to DAH by Dettmers in
writing, no employee of Dettmers, to Senior Management's knowledge, has a
present intention to leave the employ of Dettmers or has taken any action
directed towards leaving the employ of Dettmers. Except as set forth on
Schedule 3.2.21, to Senior Management's Knowledge, no former officer or
employee of Dettmers is currently or intends to enter into competition
with the business of Dettmers.
3.2.22 CREDIT TERMS: PRODUCT WARRANTIES. Schedule 3.2.22(a) sets
forth all of the standard terms and conditions of credit and discounts
given by Dettmers to its customers in the usual and ordinary course of
its business and a list of all transactions pending where there is a
material departure therefrom. There has been no material change in the
aggregate amount of losses and expenses incurred by reason of allowances,
customer dissatisfaction or liabilities arising under Dettmers's
warranties and guarantees during the three years ended December 31, 1997;
and there has been no material adverse change in that experience since
said date. Except as set forth on Schedule 3.2.22(b), (i) there have been
no recalls of Dettmers product, (ii) to the knowledge of Senior
Management, there is no Dettmers product which is either defective or
likely to experience a failure rate materially greater than the average
for Dettmers' products over the three year period ended December 31,
1997, and (iii) Dettmers has conducted all qualification inspections and
quality conformance inspections required by the specifications for
products of Dettmers included on qualified products lists in material
compliance with the requirements of such specifications, and all products
shipped have been in material conformance with such specifications.
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3.2.23 CONTRACTS WITH AFFILIATES. Any contract, commitment, lease,
permit or other instrument, agreement, understanding or obligation
(written or oral) between Dettmers and any affiliate of Dettmers or any
officer thereof is described on Schedule 3.2.23 hereto, and is the
equivalent of an "arms-length" transaction with a third party (except to
the extent otherwise described in Schedule 3.2.23).
3.2.24 GOVERNMENT CONTRACTS.
(a) For purposes of this Section 3.2.24, (i) the term "Government"
means any agency, division, subdivision, audit group, or procuring office
of the federal government, including the employees or agents thereof;
(ii) the term "Government Contract" means any prime contract,
subcontract, basic ordering agreement, letter contract, purchase order or
delivery order of any kind, including all amendments, modifications and
options thereunder or relating thereto, between Dettmers and any of the
Government, any prime contractor of the Government, any subcontractor of
such a prime contractor or any subcontractor of another subcontractor,
however far removed from the prime contractor such subcontractor may be,
(x) currently in force, or (y) which, within the three years preceding
the date of this Agreement, expired or were terminated, or (z) for which
final payment was received within the three years preceding the date of
this Agreement; and (iii) the term "Bid" means any outstanding quotation,
bid or proposal submitted by Dettmers to the Government, any proposed
prime contractor of the Government, or any proposed subcontractor.
(b) Dettmers is not a party to any Government Contract and has not
submitted any Bids which have not expired.
(c) Except as set forth in Schedule 3.2.24, (i) no show cause
notices, cure notices, or terminations have been issued against Dettmers
with respect to any Government Contract; (ii) no negative determinations
of responsibility have been issued against Dettmers with respect to any
Bid and (iii) neither the Government, any prime contractor nor any
subcontractor has notified Dettmers, either orally or in writing, that it
is in breach or violation of any provision of any Government Contract,
any certification or representations with respect thereto, or any
statutes and regulations applicable thereto.
(d) Dettmers is not undergoing and has not undergone any audit, and
has no knowledge or reason to know of any basis for impending audits in
the future, arising under or relating to any Government Contract except
as set forth in Schedule 3.2.24.
3.2.25 SOLVENCY. The total assets of Dettmers exceed its total
liabilities; and Dettmers generally is able to perform its financial
obligations as performance thereof becomes due.
3.2.26 INSURANCE. Schedule 3.2.26 is a true, correct and complete
list of all insurance policies and bonds in force in which Dettmers is
named as an insured party, as respects the business of Dettmers, or for
which Dettmers has been charged or has paid any premiums; all of which
are currently in full force and Dettmers has not received any notice from
any such insurer with respect to the cancellation of any such insurance.
Dettmers has previously delivered correct and complete copies of all such
policies to DAH. Dettmers will continue all of such insurance in full
force and effect up to and including the Closing Date. All premiums due
and payable on such policies have been paid. Dettmers is not a co-insurer
under any term of any insurance policy.
3.2.27 BANK ACCOUNTS, DEPOSITORIES AND POWERS OF ATTORNEY. Schedule
3.2.27 is a true, correct and complete list of the names and locations of
all banks or other depositories in which Dettmers maintains accounts or
safe deposit boxes, and the names of the persons authorized to draw
thereon, borrow therefrom or have access thereto. No person or entity
holds a power of attorney on behalf of Dettmers.
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3.2.28 UNDISCLOSED LIABILITIES. Except as disclosed on Schedule
3.2.28, Dettmers has no liability or obligation of any nature
individually in the amount of $50,000 or in the aggregate in the amount
of $100,000 (whether liquidated, unliquidated, accrued, absolute, known
or unknown, contingent or otherwise and whether due or to become due)
except:
(a) those set forth or reflected in the March 31, 1998 Balance Sheet
which have not been paid or discharged since the date thereof;
(b) those arising under agreements or other commitments expressly
identified in any Schedule hereto; and
(c) current liabilities incurred in, or as a result of, the conduct
of its business in the ordinary and usual course consistent with past
practice since March 31, 1998, which are completely and accurately
reflected on its books and records and which are not inconsistent with
the other representations, warranties and agreements of Dettmers set
forth in this Agreement.
3.2.29 TAXES. Except as set forth on Schedule 3.2.29, Dettmers has
filed, when due, all federal, state, local and foreign tax returns and
tax reports. All amounts payable pursuant to such returns by Dettmers
through the Closing Date have been paid, or will be timely paid and are
adequately provided for in the March 31, 1998 Financial Statements. All
such returns and reports are true and correct and, except as disclosed on
Schedule 3.2.29, none of them have been amended. Schedule 3.2.29 sets
forth the dates and any results of any and all audits of any tax returns
of Dettmers (whether pending or completed) performed by federal, state,
local or foreign taxing authorities; and no waivers of any statutes of
limitation have been made or requested in connection therewith. No
deficiency for any material amount of tax has been asserted or assessed
by any taxing authority against Dettmers. All estimated tax payments have
been made except as reserved for in the Balance Sheet included in the
March 31, 1998 Financial Statements, and there will not be any amount
owing by Dettmers for taxes, penalties or interest.
3.2.30 ABSENCE OF CERTAIN CHANGES IN EVENTS. Except as set forth on
Schedule 3.2.30, since March 31, 1998, there has not been:
(a) Any Material Adverse Effect;
(b) Any transaction entered into or carried out by Dettmers other
than in the ordinary and usual course of business;
(c) Any borrowing or agreement to borrow funds; any incurring of any
assumption, guarantee or other obligation or liability, contingent or
otherwise; or any assumption or performance of any loan or obligation of
any other entity, except (i) current liabilities incurred in the usual
and ordinary course of business or (ii) otherwise, those in an amount not
exceeding in the aggregate $50,000 at any one time outstanding;
(d) Any material change made by Dettmers in the methods of doing
business, or other than such changes required by GAAP, any change in the
accounting principles or practices of Dettmers with respect to any of the
Financial Statements or the method of application of such principles or
practices;
(e) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or with
respect to any of the Assets, Real Property or Personal Property);
(f) Any sale, lease or other disposition of or any agreement to sell,
lease or otherwise dispose of any of the Property or Assets of Dettmers,
other than sales of finished goods in the usual and ordinary course of
business and at Dettmers's scheduled prices or the prices specified in
Contracts copies of which have previously been delivered to DAH;
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(g) Any purchase of, or any agreement to purchase, capital assets for
an amount in excess of $50,000 for any one such purchase, or $100,000 for
all such purchases made by Dettmers; or any lease or any agreement to
lease, as lessee, any capital assets with payments over the term thereof
to be made by Dettmers exceeding an aggregate of $50,000 for any one
lease or $100,000 in the aggregate;
(h) Any loan or advance made by Dettmers to any individual, firm,
corporation or other entity except for advances not material in amount
made in the usual and ordinary course of business to employees; or
(i) Any other event or condition of any character which has had a
Material Adverse Effect or may reasonably be expected to result in a
Material Adverse Effect.
3.2.31 USE OF NAME. Without limiting the effect of Section 1.1.6(a)
hereof, Dettmers owns the names "Dettmers Industries, Inc." and
"Dettmers", and any related trademarks and trade names, free and clear
and, to Senior Management's Knowledge, without any restrictions or
limitations on their use, acknowledges that Buyer plans to operate the
Assets under the same or similar corporate names immediately after the
Closing Date, and unconditionally consents to such use for such duration
as DAH may at its sole option elect.
3.2.32 COMPLETE DISCLOSURE. No representation or warranty made by
Dettmers and the Dettmers Shareholders in this Agreement, and no exhibit,
schedule, statement, certificate or other information furnished to Buyer
by or on behalf of the Dettmers Shareholders, Dettmers or its officers
pursuant to this Agreement, or in connection with the transactions
contemplated hereby or thereby, contains or will contain, any untrue
statement of a material fact or omits or will omit to state a material
fact necessary in light of the circumstances to make the statements
contained herein and therein not misleading.
The Schedules to this Agreement identified in this Agreement as Schedules of
Dettmers and the Dettmers Shareholders have been prepared by and at the
exclusive direction of Dettmers and the Dettmers Shareholders. The mechanical
assistance of DAH and Buyer in the physical preparation of the Schedules is not
and will not be asserted by either Dettmers or the Dettmers Shareholders as
preparation of the Dettmers and Dettmers Shareholders Schedules by DAH and/or
Buyer.
4. ASSUMPTION OF CERTAIN LIABILITIES; NO ASSUMPTION OF OTHER LIABILITIES.
4.1 On the Closing Date, Buyer will assume:
4.1.1 ACCOUNTS PAYABLE. All accounts payable for current purchases
by Dettmers outstanding as of the Closing Date; PROVIDED, HOWEVER, that
Buyer shall not assume the obligation to pay any vendor to Dettmers with
whom Dettmers has a dispute as to the amount of the account payable. A
schedule of the accounts payable of Dettmers as of March 31, 1998 is
attached as Schedule 4.1.1;
4.1.2 ACCRUED OPERATING EXPENSES. All accrued operating expenses
which were incurred by Dettmers in the ordinary course of business and
which are reflected as a liability on the balance sheet for Dettmers as
of the Closing Date. Attached as Schedule 4.1.2(a) is a balance sheet as
at March 31, 1998 and the general ledger for Dettmers as of said date, a
copy of which is attached as Schedule 4.1.2(b).
4.1.3 OPERATING LEASE(S). The leases specified on Schedule 1.1.2;
together with the written consents of the lessors of such property to the
assignment of the leases to Buyer, each dated no less than 1 day prior to
the Closing Date.
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4.1.4 OPEN PURCHASE CONTRACTS. The obligation of Dettmers as
purchaser to perform all purchase contracts in existence on the Closing
Date which were incurred by Dettmers in the ordinary course of business.
4.1.5 CURRENT LIABILITIES FROM OPERATIONS IN THE ORDINARY
COURSE. Those obligations of Dettmers which have been incurred from and
after March 31, 1998 in the ordinary course of business and which are
expressly permitted by the affirmative covenants and not prohibited by
the negative covenants set forth in Section 5.2 of this Agreement.
4.1.6 WARRANTY OBLIGATIONS. To the extent of $25,000 per year, the
obligation to provide warranty work provided to the customer in any sales
agreement of Dettmers.
4.1.7 ROYALTIES AND LICENSE FEES. To the extent of Royalties for
Patents and License Fees specified in Schedule 4.1.7, the Royalties and
License Fees which appear on said Schedule.
4.1.8 VACATION, SICK LEAVE AND PENSION BENEFITS. To the extent
reserved for in the balance sheet as of March 31, 1998, or to the extent
of assets transferred with respect to pension liabilities, to pay for
vacation time, sick leave and to provide pension benefits, in each case
to the extent specified on Schedule 4.1.8.
4.1.9 EMPLOYMENT CONTRACTS. Subject to modification to delete the
obligation in Section 2.4 thereof, Buyer shall assume the Employment
Agreement of Pamela Courtney dated January 1, 1998. Neither Buyer nor DAH
shall assume any other employment contract.
4.2 LIABILITIES NOT ASSUMED. With the exception of the liabilities
assumed pursuant to Section 4.1, Buyer shall not by the execution or
performance of this Agreement, or otherwise, assume or otherwise be
responsible for any liability or other obligation of Dettmers or any
affiliate thereof of any kind, nature or description, whether such liability
or obligation is mature or not, liquidated or unliquidated, fixed or
contingent, known or unknown, whether arising out of occurrences prior to,
at or after the date of this Agreement, including without limitation, those
arising from the current employment and compensation arrangements of
Dettmers through Staff Leasing for the staff of Dettmers, breach of
contract, breach of any warranty, infringement, fraud, violation of any law,
rule or regulation, or out of any charge, complaint, action, suit,
proceeding, hearing, investigation, claim or other demand.
5. COVENANTS.
5.1 COVENANTS OF BUYER.
5.1.1 PAYMENT AND PERFORMANCE OF ASSUMED LIABILITIES. From and
after the Closing Date, Buyer shall pay and perform the liabilities
assumed pursuant to Section 4.1 in the ordinary course of its business in
accordance with Buyer's standard business practices.
5.1.2 HOLD HARMLESS. DAH and Buyer agree to indemnify and hold
harmless Dettmers and the Dettmers Shareholders from any liabilities to
third parties arising from the operations or business of Dettmers on and
after the consummation of the transactions contemplated herein on the
Closing Date, except to the extent caused by the actions, gross
negligence or willful misfeasance of Dettmers.
5.1.3 DUTY TO COLLECT ACCOUNTS RECEIVABLE . Buyer and DAH shall use
their best efforts to collect accounts receivable outstanding at the
Closing Date. As used in this Section 4.1.7, "best efforts" shall be
deemed to have been used so long as Buyer continues the accounts
receivable collection practices used by Dettmers prior to the date of
this Agreement.
5.1.4 EMPLOYEES. From and after the Closing Date, Buyer and DAH
shall employ substantially all of the current employees of Staff Leasing
assigned to Dettmers, subject to normal management prerogatives to review
performance and terminate employment as necessary or
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appropriate for the business. The Buyer and DAH shall compensate such
employees at substantially the same level of compensation in effect for
such employees. Buyer and DAH will continue normal fringe benefits for
such employees subject to the integration of such fringe benefits with
Buyer's and DAH's current programs.
5.2 COVENANTS OF DETTMERS.
5.2.1 CONDUCT OF BUSINESS OF DETTMERS PRIOR TO CLOSING
DATE. Dettmers agrees that on and after the date hereof and prior to the
Closing Date:
(a) The business and operations, activities and practices of Dettmers
shall be conducted only in the ordinary course of business and consistent
with past practice;
(b) No change shall be made in the articles of incorporation or
bylaws of Dettmers.
(c) No change shall be made in the number of shares of authorized or
issued capital stock of Dettmers; nor shall any option, warrant, call,
right, commitment or agreement of any character be granted or made by
Dettmers relating to its equity;
(d) Dettmers shall not, directly or indirectly, solicit or encourage
(including by way of furnishing any non-public information concerning the
business, properties or assets of Dettmers), or enter into any
negotiations or discussions concerning, any Acquisition Proposal (as
defined below). Dettmers shall notify Buyer promptly by telephone, and
thereafter promptly confirm in writing, if any such information is
requested from, or any Acquisition Proposal is received by Dettmers. As
used in this Agreement, "Acquisition Proposal" shall mean any proposal
received by Dettmers or any officer or director thereof prior to the
Closing Date for a merger or other business combination involving
Dettmers, or for the acquisition of, or the acquisition of a substantial
equity interest in, or any material part of the assets of Dettmers, other
than the one contemplated by this Agreement.
(e) Except as set forth in Schedule 5.2.1(e), Dettmers will not:
(i) incur, become subject to, or suffer, or agree to incur,
become subject to or suffer, any obligation or liability
(absolute or contingent) except current liabilities incurred, and
obligations under contracts entered into, in the ordinary course
of business;
(ii) discharge or satisfy any lien or encumbrance or pay any
obligation or liability (absolute or contingent) other than
liabilities payable in the ordinary course of business;
(iii) mortgage, pledge or subject to lien, charge or any
other encumbrance, any of the Property or agree so to do;
(iv) sell or transfer or agree to sell or transfer any of
its assets, or cancel or agree to cancel any debt or claim,
except in each case in the ordinary course of business;
(v) consent or agree to a waiver of any right of substantial
value;
(vi) enter into any transaction other than in the ordinary
course of its business;
(vii) terminate any contract, agreement, license or other
instrument to which it is a party;
(viii) through negotiation or otherwise, make any commitment
or incur any liability or obligation to any labor organization;
(ix) without the express written consent of Buyer, make or
agree to make any accrual or arrangement for, or payment of
bonuses or special compensation of any kind, or any severance or
termination pay, to any employee;
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(x) introduce any new method of management, operation or
accounting with respect to its business or any of the assets,
properties or rights applicable thereto;
(xi) offer or extend more favorable prices, discounts or
allowances than were offered or extended regularly on and prior
to March 31, 1998 other than in the ordinary course of business;
(xii) make capital expenditures or commitments therefor
without the express written consent of Buyer; or
(xiii) hire any new employee other than replacements for open
positions reflected in the March 31, 1998 Financial Statements.
(f) Dettmers will use its best efforts to preserve Dettmers' business
organization intact, to keep available to Dettmers the present service of
Dettmers' employees, and to preserve for Dettmers the good will of its
suppliers, customers and others with whom business relationship exist;
and
(g) Dettmers will not take, agree to take or permit to be taken, any
action or do or permit to be done anything in the conduct of the business
of Dettmers, or otherwise, which would be contrary to or in breach of any
of the terms or provisions of this Agreement or which would cause any of
the representations or warranties of Dettmers or the Dettmers
Shareholders contained herein to be or become untrue in any material
respect.
5.2.2 INSPECTION OF BOOKS AND RECORDS. From the date of this
Agreement until the Closing Date, Dettmers shall make or cause to be made
available to Buyer for examination, the Property and other materials such
as books of account, contracts, agreements, commitments, records and its
documents, and shall permit Buyer and its representatives, attorneys,
accountants and agents to have access to and to copy, at Buyer's expense,
the same at all reasonable times. In addition, Dettmers shall make, or
cause to be made available to Buyer and its representatives, attorneys,
accountants and agents, the Property and all of the above described
records for any environmental compliance audit, any environmental site
assessment (including soil, groundwater and/or other testing) and any
other physical inspection which Buyer may elect to conduct at its own
expense.
5.2.3 FURTHER ASSURANCES. On and after the Closing Date, the
Dettmers Shareholders and Dettmers officers, directors and agents each
shall prepare, execute and deliver such further instruments of
conveyance, sale, assignment or transfer, and shall take or cause to be
taken such other or further action as Buyer shall reasonably request at
any time or from time to time in order to perfect, confirm or evidence in
Buyer title to all or any part of the Property or to consummate, in any
other manner, the terms and conditions of this Agreement.
5.2.4 PRESS RELEASES AND ANNOUNCEMENTS. Neither Dettmers nor the
Dettmers Shareholders shall make any press release or announcement
regarding the transaction contemplated herein without the prior written
approval of Buyer or DAH, other than in conjunction with a press release
or announcement issued by Buyer or DAH, which Buyer or DAH shall be
permitted to make without the prior written approval of the other parties
hereto; PROVIDED, HOWEVER that Dettmers, the Dettmers Shareholders, Buyer
or DAH may make any public disclosure he or it believes in good faith is
required by law (in which case he or it will advise the other parties
hereto prior to making the disclosure). On the Closing Date, Buyer and
DAH will issue public announcements and/or press releases announcing the
transaction contemplated by this Agreement.
5.2.5 BANKRUPTCY. Dettmers agrees that on and after the date of
this Agreement (i) Dettmers shall not commence any case, proceeding or
other action (A) under any existing or
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future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to any of them or seeking
to adjudicate any of them bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to any of them or
for all or any substantial part of any of their assets; (ii) Dettmers
shall not make a general assignment for the benefit of its creditors;
(iii) no case, proceeding or other action of a nature referred to in
clause (i) above shall be commenced by any person which (A) results in
the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed or discharged for a period of 60 days; (iv) no
case, proceeding or other action shall be commenced by any person seeking
issuance of a warrant of attachment, execution distraint or similar
process against all or any substantial part of the assets of Dettmers
which results in the entry of an order for any such relief; and (v)
Dettmers shall not take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), (iii), or (iv) above.
5.2.6 TRADE SECRETS AND CONFIDENTIAL KNOW-HOW. Between the date
hereof and the Closing Date, Dettmers and its agents, officers and
employees shall, upon request by Buyer, reduce to writing all trade
secret information or other know-how of a business or technical nature
which is now used in or which is useful for the present or anticipated
future business of Dettmers, such writing to be confidential and afforded
such protection and confidential treatment as Buyer shall reasonably
request.
5.2.7 INDEMNITY REGARDING BULK SALES, ETC. The Dettmers
Shareholders hereby agree to indemnify and hold harmless DAH and Buyer
from any claims, costs or losses incurred as a result of the failure of
Dettmers to comply with any and all requirements of sales tax and bulk
sales laws and regulations arising under applicable state law in
connection with the transactions contemplated by this Agreement.
5.2.8 WARRANTY WORK AFTER CLOSING DATE. To the extent that such
costs exceed $25,000 per year for Buyer's costs incurred in respect of
any warranty work completed by Buyer pursuant to its liabilities assumed
under Section 4.1.6, the Dettmers Shareholders, by a reduction of amounts
payable to Dettmers or Dettmers Shareholders pursuant to the terms of
this Agreement, shall reimburse Buyer for Buyer's actual direct cost of
material and labor incurred in respect of any warranty work
5.2.9 HOLD HARMLESS. The Dettmers Shareholders agree to indemnify
and hold harmless DAH and Buyer from any liabilities to third parties
arising from the operations or business of Dettmers at any time prior to
the consummation of the transactions contemplated herein on the Closing
Date, except to the extent caused by the actions, gross negligence or
willful misfeasance of DAH or Buyer; provided, however, the indemnity
with respect to Warranty work set forth in Section 5.2.8 shall be limited
to amounts otherwise payable to Dettmers or Dettmers Shareholders
pursuant to this Agreement.
5.2.10 USE OF NAME/DISSOLUTION OF SELLER. Immediately upon the
Closing, Dettmers shall (a) change its name to a name which does not
include the name "Dettmers", (b) not use any name, mark, logo or design
included in the Assets, and (c) provide to DAH and Buyer such evidence of
the foregoing as either from time to time may reasonably request. In the
event that the Dettmers Shareholders and Dettmers decide to dissolve
Dettmers post transaction, then a certificate of dissolution shall be
delivered to Buyer and DAH upon Dettmers receipt of same. A certified
copy of a certificate of dissolution shall constitute adequate evidence
for DAH and Buyer to make any further payments called for in this
Agreement directly to the Dettmers Shareholders in such proportion as the
Dettmers Shareholders direct in writing.
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6. CLOSING AND CONDITIONS PRECEDENT.
6.1 CLOSING DATE. The date upon which the transactions contemplated
hereby shall become effective (the "Closing Date") shall be the date, no
later than June 30, 1998, upon which each of the conditions precedent set
forth in Sections 6.2 and 6.3 shall have been satisfied or waived pursuant
to the respective terms thereof.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF DAH AND BUYER. Each and
every obligation of DAH and Buyer to be performed on the Closing Date shall
be subject to the satisfaction on or before the Closing Date of each of the
following conditions (unless waived in writing by DAH and Buyer):
6.2.1 Dettmers shall have delivered to Buyer each of the
following, in each case duly and properly executed (if appropriate) and
in form and substance reasonably satisfactory to the Buyer:
(a Good and sufficient assignments of each Real Property Lease,
conveying all of Dettmers' right, title and interest in and to such Real
Property Lease, free and clear of all mortgages, pledges, liens, security
interests, encumbrances, restrictions and claims of any nature
whatsoever, except those listed as permitted exceptions on Schedule
6.2.1(a); together with recordable memoranda thereof if requested by
Buyer.
(b Written consents of the lessors under each Real Property Lease,
to the assignment of each such Real Property Lease, with no adverse
condition attached, and estoppel and non-disturbance agreements of such
lessors.
(c A good and sufficient General Conveyance, Assignment and Bill of
Sale, conveying, selling, transferring and assigning to Buyer title to
all of the Property free and clear of all security interests, liens,
charges, encumbrances or equities whatsoever, except those listed as
permitted exceptions on Schedule 6.2.1(c); and Motor Vehicle Certificates
of Title to each of the Vehicles, endorsed for transfer to Buyer.
(d The persons listed on Schedule 6.2.1(d) shall have executed and
delivered Employment Agreements to DAH and Buyer in the form of EXHIBIT A
attached hereto.
(e Good and sufficient assignments of each of the Personal Property
Leases and each of the Contracts, in each case together with the written
consents of all parties necessary in order to transfer all of Dettmers'
rights thereunder to Buyer.
(f Copies of each of the Permits, together with evidence
satisfactory to Buyer that the same are in full force and effect, and (to
the extent requested by Buyer) evidence that such permits are eligible
for immediate transfer to Buyer.
(g The books and records described in Section 3.2.20; each of the
Financial Statements described in Section 3.2.4; [the Second Quarter
Financial Statements to be delivered pursuant to Section 4.2.10;] the tax
returns described in Section 3.2.29, together with evidence satisfactory
to the Buyer of the payment by Dettmers of all amounts due to the
relevant taxing authorities pursuant thereto; and each policy of
insurance described in Section 3.2.26, together with evidence that such
policies are in force on the Closing Date.
(h Evidence satisfactory to DAH and Buyer and their counsel that the
execution and delivery of this Agreement has been authorized by Dettmers.
(i A favorable opinion of counsel for Dettmers, addressed to Buyer
and DAH and dated the Closing Date, as to the matters set forth in
Sections 3.2.1, 3.2.2 and 3.2.3 hereof and such other matters as Buyer or
DAH may reasonably request.
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(j The Articles of Incorporation of Dettmers, certified as of a
recent date by the Secretary of State of Delaware.
(k The Bylaws of Dettmers, certified as true and complete by the
Corporate Secretary of Dettmers.
(l Certificates of the Secretaries of State of Delaware and Florida,
each dated as of a date not earlier than ten days prior to the Closing
Date, as to the good standing of Dettmers in such States (and, in
Delaware, the payment of all corporate franchise taxes), together with
facsimile confirmation of such good standing on the Closing Date.
(m An affidavit of the Chief Executive Officer or Chief Financial
Officer of Dettmers stating that Dettmers is not a foreign seller within
the meaning of the Internal Revenue Code of 1986, as amended, and such
other evidence of domestic ownership as may be required or reasonably
deemed advisable by Buyer in any state or local jurisdiction where the
Property is located.
(n Such other consents as Buyer deems necessary or desirable in
order to consummate the transactions contemplated herein.
(o Such other separate instruments of sale, assignment or transfer
that Buyer may reasonably deem necessary or appropriate in order to
perfect, confirm or evidence title to all or any part of the Property.
(p A general release in a form acceptable to Buyer and DAH from
Michael Dettmers regarding his prior ownership of Dettmers shares.
(q Evidence of a written termination, in a form acceptable to DAH
and Buyer, of the Commercial Lease dated December 18, 1996 between Andrew
Perl and Peter Dettmers and Dettmers Industries Inc. with respect of the
Real Property leased at 3190 S. E. Slater Street, Stuart, Florida.
6.2.2 In its sole judgment and discretion, DAH shall be satisfied
with the compensation plan of Dettmers for all employees and the
termination of (i) the provisions of the Dettmers Employee Handbook and
(ii) the existing compensation program which provides incentives to all
employees.
6.2.3 In its sole judgment and discretion, (i) DAH shall be
satisfied with the completion of its due diligence review of the business
and operations of Dettmers, and (ii) DAH shall have obtained the consent
of its senior lender as to the transaction contemplated by this
Agreement.
6.2.4 DAH and Buyer shall have the right, but shall have no
obligation to close and make the final $2,100,000 payment, or any other
payment not already made, in the event that Dettmers has not, prior to
the Closing Date, received a firm Purchase Order which sets forth
schedule, quantity and unit price from Raytheon E-Systems for Dettmers
products on Boeing Business Jets, as more fully described in Raytheon's
letter to Dettmers dated May 29, 1998.
6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF DETTMERS. Each and every
obligation of Dettmers and the Dettmers Shareholders to be performed on the
Closing Date shall be subject to the satisfaction on or before the Closing
Date of each of the following conditions (unless waived in writing by
Dettmers): The Buyer shall have delivered to Dettmers each of the following,
in each case duly and properly executed (if appropriate) and in form and
substance reasonably satisfactory to Dettmers:
6.3.1 Payment of the amounts required to be paid pursuant to
Section 2, in immediately available funds on the Closing Date.
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6.3.2 Resolutions of the directors of Buyer and DAH authorizing
the execution and delivery of this Agreement by Buyer and DAH
respectively, and the performance of their respective obligations
hereunder, certified by the Corporate Secretaries of Buyer and DAH,
respectively.
6.3.3 A favorable opinion of counsel for Buyer and DAH, addressed
to Dettmers and dated the Closing Date, as to the matters set forth in
Sections 3.1.1 and 3.1.2 hereof.
6.3.4 The Assumption Agreement with respect to the Assumed
Liabilities, in the form of EXHIBIT B attached hereto.
6.3.5 Delivery by Buyer of an indemnity agreement which
indemnifies the Dettmers Shareholders against any claims made by third
parties under their personal guarantees as set forth in the Commercial
Lease dated December 12, 1996 regarding the real property located at 3190
S. E. Slater Street, Stuart, Florida (the "3190 Lease"). The indemnity
provided to the Dettmers Shareholders is only with respect of claims and
occurrences relating to the 3190 Lease that occur after the transactions
contemplated hereby are consummated, and is given in connection with
Buyer's assumption of the 3190 Lease.
7. MISCELLANEOUS PROVISIONS.
7.1 NOTICES. All notices and other communications required or
permitted under this Agreement shall be deemed to have been duly given and
made if made in writing, and (i) if served by personal delivery to the party
for whom intended (which shall include overnight delivery by Federal Express
or similar service), to the address provided for such party set forth below,
or such other address as may be designated by writing hereafter by such
party, or (ii) if sent by telecopy to the number set forth below, or such
other number as may be designated in writing hereafter by such party and
immediately confirmed by sending a copy of such notice by either method
described in clause (i) above:
<TABLE>
<S> <C>
If to Buyer/DAH: DeCrane Aircraft Holdings, Inc.
2361 Rosecrans Ave., Suite 180
El Segundo, California
Attn: R. Jack DeCrane
Fax: (310) 643-0746
With copies to: Stephen A. Silverman, Esq.
Spolin & Silverman
100 Wilshire Blvd., Suite 940
Santa Monica, CA 90401
Fax: (310) 576-4844
If to Dettmers or
Dettmers
Shareholders: Andrew Perl
Peter Dettmers
Dettmers Industries
3081 S.E. Slater Street
Stuart. Florida 34997
Fax: (561) 288-7295
With copies to: James P. Covey, Esq.
1111 S. Federal Highway, Suite 300
Stuart, Florida 34994
Fax: (561)286-1505
</TABLE>
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7.2 ARBITRATION. Any dispute, claim or controversy arising out of or
relating to this Agreement or any breach thereof shall be decided by
arbitration conducted in Miami, Florida before a single arbitrator in an
arbitration proceeding otherwise conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and which
arbitration provides for reasonable discovery, including depositions,
interrogatories and production of documents. The decision of the arbitrator
shall be final and binding on the parties and such decision shall be
enforceable as a judgment in any court of competent jurisdiction. The cost
of arbitration shall be shared equally between the parties.
7.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, and the documents referred to herein and therein, embody the entire
agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings, oral or written, relative to said subject
matter.
7.4 BINDING EFFECT; ASSIGNMENT. This Agreement and the rights and
obligations arising hereunder shall inure to the benefit of and be binding
upon Dettmers, its successors and permitted assigns, Buyer and DAH, their
respective successors and permitted assigns. Neither this Agreement nor any
of the rights, interest or obligations hereunder shall be transferred or
assigned (by operation of law or otherwise) by any of the parties hereto
without the prior written consent of the other party or parties, except that
Buyer shall have the right to assign, in whole or in part, its rights
hereunder to one or more affiliates of Buyer, which in each case shall be a
wholly-owned subsidiary of Buyer. Any transfer or assignment of any of the
rights, interests or obligations hereunder in violation of the terms hereof
shall be void and of no force or effect.
7.5 CAPTIONS. The Section headings of this Agreement are inserted for
convenience only and shall not constitute a part of this Agreement in
construing or interpreting any provision hereof.
7.6 WAIVER; CONSENT. This Agreement may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance),
in whole or in part, except by a writing executed by the parties hereto, and
no waiver of any of the provisions or conditions of this Agreement or any of
the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given or
consented thereto. Except to the extent that a party hereto may have
otherwise agreed in writing, no waiver by that party of any condition of
this Agreement or breach by the other party of any of its obligations or
representations hereunder or thereunder shall be deemed to be a waiver of
any other condition or subsequent or prior breach of the same or any other
obligation or representation by the other party, nor shall any forbearance
by the first party to seek a remedy for any noncompliance or breach by the
other party be deemed to be a waiver by the first party of its rights and
remedies with respect to such noncompliance or breach.
7.7 NO THIRD PARTY BENEFICIARIES. Subject to Section 7.4, nothing
herein, expressed or implied, is intended or shall be construed to confer
upon or give to any person, firm, corporation or legal entity, other than
the parties hereto, any rights, remedies or other benefits under or by
reason of this Agreement.
7.8 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
7.9 SEVERABILITY. With respect to any provision of this Agreement
finally determined to be unenforceable, Dettmers, the Dettmers Shareholders,
DAH and Buyer hereby agree that such court or arbitrator(s) shall have
jurisdiction to reform such provision so that it is enforceable to the
maximum extent permitted by law, and the parties agree to abide by such
court's or arbitrator(s)' determination. In the event that any such
provision cannot be reformed, such provision shall be
24
<PAGE>
deemed to be severed from this Agreement, but every other provision of this
Agreement shall remain in full force and effect.
7.10 GOVERNING LAW. This Agreement shall in all respects be construed
in accordance with and governed by the laws of the State of Delaware, with
venue in Miami, Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
<TABLE>
<S> <C>
DETTMERS INDUSTRIES, INC., DECRANE AIRCRAFT HOLDINGS, INC.
a Delaware corporation
By: By:
DETTMERS SHAREHOLDERS DAHX ACQUISITIONS, INC.
PETER DETTMERS By:
ANDREW PERL
</TABLE>
25
<PAGE>
EXHIBIT 10.1
<PAGE>
CONSENT AND AMENDMENT NO. 3 TO
LOAN AND SECURITY AGREEMENT
This Consent and Amendment No. 3 to Loan and Security Agreement (this
"Amendment") is made as of May 29, 1998, among DeCrane Aircraft Holdings, Inc.,
a Delaware corporation ("Borrower"), Bank of America National Trust and Savings
Association, successor-by-merger to Bank of America Illinois, individually as a
lender ("BoA") and as agent ("Agent"), Comerica Bank--California ("Comerica"),
Mellon Bank, N.A. ("Mellon"), and Sumitomo Bank of California ("Sumitomo";
Sumitomo, BoA, Comerica and Mellon being collectively referred to as "Lenders").
Reference is made to that certain Loan and Security Agreement dated as of
April 15, 1997 among Borrower, Agent and Lenders (as amended or otherwise
modified from time to time, the "Loan Agreement"; capitalized terms used herein
without definition shall have the meanings ascribed to such terms in the Loan
Agreement).
Borrower has requested that Requisite Lenders consent to the acquisition
(the "Avtech Acquisition") by Borrower of not less than 99.44% of the
outstanding capital stock of Avtech Corporation, a Washington corporation
("Avtech"). Absent the written consent of Requisite Lenders, consummation of the
Avtech Acquisition would cause a breach of each of SECTIONS 5.11 and 5.17 of the
Loan Agreement.
Borrower has also requested that all of the Lenders agree to amend the Loan
Agreement in certain respects.
NOW, THEREFORE, Agent, Lenders and Borrower agree as follows:
1. CONSENT. Subject to the conditions precedent set forth in Section 2 of
this Amendment, Lenders hereby consent to the consummation of the Avtech
Acquisition. This consent shall not constitute (a) a modification or alteration
of the terms, conditions or covenants of the Loan Agreement or any document
entered into in connection therewith, or (b) a waiver, release or limitation
upon the exercise by Agent or any Lender of any of its rights, legal or
equitable, hereunder. Except as set forth above, Agent and each Lender reserves
any and all rights and remedies which it has had, has or may have under the Loan
Agreement.
2. AVTECH ACQUISITION CONDITIONS PRECEDENT. The consent of the Lenders to
the consummation of the Avtech Acquisition shall become effective as of the date
of this Amendment upon the satisfaction of the following conditions precedent:
2.1. Borrower shall have delivered to Agent a manually executed original
of this Agreement;
2.2. The terms of the Avtech Acquisition shall be no less favorable to
the Borrower from those set forth in a draft Stock Purchase Agreement
concerning the Avtech Acquisition delivered to counsel to Agent with a draft
date of May 13, 1998. In furtherance, and not by way of limitation, of the
foregoing:
2.2.1. The aggregate purchase price of the Avtech Acquisition shall
not exceed $83,000,000 PLUS cash and cash equivalents of Avtech and minus
indebtedness for borrowed money of Avtech; and
2.2.2. The Avtech Acquisition shall be consummated on or prior to
July 7, 1998.
2.3. No Event of Default or Unmatured Event of Default shall be in
existence at the time of the consummation of the Avtech Acquisition, or
would be caused after giving effect thereto;
2.4. Agent and Lenders shall have completed an environmental due
diligence review of Avtech, and shall be satisfied with the results thereof;
2.5. Agent and Lenders shall have received an executed copy of the
purchase agreement between the Borrower and the current shareholders of
Avtech (the "Purchase Agreement"), and Agent and
1
<PAGE>
Lenders shall be satisfied with the terms and conditions thereof, including
without limitation the representations, warranties and indemnities made
therein in favor of the Borrower;
2.6. Agent shall have received (i) executed copies of all additional
agreements, documents and instruments pertaining to the consummation of the
Avtech Acquisition (collectively with the Purchase Agreement, the "Avtech
Acquisition Documents") and (ii) a collateral assignment executed by the
Borrower, in form and substance acceptable to Agent, of all representations,
warranties, covenants and other agreements (including indemnification
agreements) made in favor of the Borrower under the Avtech Acquisition
Documents, for the benefit of the Agent, the Lenders and Issuer;
2.7. Agent, for the benefit of itself, Issuer and the Lenders, shall
have received (i) a guaranty executed by Avtech in form substantially
similar to guaranties previously executed by the presently existing
Subsidiaries of the Borrower in connection with the execution of the Loan
Agreement, (ii) first priority Liens on the stock and assets of Avtech,
granted pursuant to (x) a certain Pledge Agreement dated as of April 15,
1997 executed by Borrower in favor of Agent and (y) a security agreement in
form substantially similar to security agreements previously executed by the
presently existing Subsidiaries of the Borrower in connection with the
execution of the Loan Agreement and (iii) such opinions of legal counsel,
stock certificates, insurance certificates, insurance endorsements and
assignments, certificates, articles of incorporation, good standing
certificates and other agreements, instruments and documents as reasonably
requested by Agent, each in form and substance reasonable acceptable to
Agent;
2.8. The board of directors of Avtech shall have approved the
consummation of the Avtech Acquisition;
2.9. Agent shall have received a certificate from Borrower's chief
executive officer, president or chief financial officer (i) certifying that
all of conditions precedent set forth in Section 2 of this Amendment have
been satisfied and (ii) containing a computation of, and showing compliance
with, each of SECTIONS 5.24, 5.25, 5.26, 5.27 and 5.28 of the Loan Agreement
after giving effect to the Avtech Acquisition and the amendments set forth
herein, together with such financial information as Requisite Lenders shall
request to verify such compliance;
2.10. There shall not have been instituted or threatened any litigation
or proceeding in any court or administrative forum adversely concerning or
affecting the consummation of the Avtech Acquisition;
2.11. Agent shall have received evidence reasonably acceptable to Agent
that the Borrower has received all permits, consents and regulatory
approvals necessary to consummate the Avtech Acquisition;
2.12. Avtech shall have incurred no material liabilities, contingent or
otherwise, other than as disclosed on Avtech's most recently audited
financial statements, copies of which shall have been delivered to Agent;
2.13. Between the date of this Amendment and the consummation of the
Avtech Acquisition, no event, circumstance or condition shall have occurred
or exist which has a Material Adverse Effect; and
2.14. Between September 30, 1997 and the consummation of the Avtech
Acquisition (i) no event, circumstance or condition shall have occurred or
exist which has a material adverse effect upon the condition (financial or
otherwise), operations, performance or properties of Avtech and (ii) Avtech
shall have neither created nor acquired any Subsidiary.
2
<PAGE>
3. AMENDMENTS TO LOAN AGREEMENT. Subject to the conditions precedent set
forth in Section 4 of this Amendment, the Loan Agreement is hereby amended as
follows:
3.1. The first row of the table set forth under the definition of
"Applicable Margin" in SECTION 1.1 of the Loan Agreement is hereby amended
and restated as follows:
<TABLE>
<CAPTION>
APPLICABLE IBOR APPLICABLE BASE
MARGIN FOR THE MARGIN FOR THE APPLICABLE NON-USE
LEVERAGE RATIO REVOLVING LOANS REVOLVING LOANS FEE MARGIN
- ----------------------------------------------------------- ------------------- ----------------- -------------------
<S> <C> <C> <C>
Greater than 3.00:1.00..................................... 2.25% 1.00% 0.425%
Greater than or equal to 2.50:1.00, but less than
3.00:1.00................................................ 2.00% 0.75% 0.375%
</TABLE>
3.2. The definition of the term "Maximum Revolving Loan Amount" in
SECTION 1.1 of the Loan Agreement is hereby amended by adding the following
sentence to the end of such definition:
"Upon the satisfaction of the conditions precedent set forth in
that certain Amendment No. 3 to Loan and Security Agreement dated
as of May 29, 1998 among Borrower, Agent and Lenders ("Amendment
No. 3"), and notwithstanding anything to the contrary contained in
this definition, each Lender's then existing Maximum Revolving
Loan Amount shall automatically reduce by such Lender's Pro Rata
Share (determined immediately prior to the applicability of this
sentence with respect to any Lender for any applicable date) of
the sum of (x) without duplication, the aggregate net proceeds of
Indebtedness permitted under SECTION 5.14(B), not to exceed
$45,000,000, PLUS (y) the Step-Down Amount. For purposes of this
definition and the definition of the term "Revolving Credit
Amount", the "Step-Down Amount" shall mean (x) $500,000 on the
last day of each calendar month for the period commencing on
October 31, 1998 and ending on May 31, 1999 and (y) $1,000,000 on
the last day of each calendar month commencing on June 30, 1999."
3.3. The definition of the term "Revolving Credit Amount" in SECTION 1.1
of the Loan Agreement is hereby amended and restated as follows:
"Revolving Credit Amount" means the maximum amount of Revolving
Loans which Lenders will make available to Borrower. Prior to the
satisfaction of the conditions precedent set forth in Amendment
No. 3, the Revolving Credit Amount shall be equal to $75,000,000.
Upon the satisfaction of the conditions precedent set forth in
Amendment No. 3, the Revolving Credit Amount shall be equal to
$105,000,000, subject to automatic reduction by the sum of (x)
without duplication, the aggregate net proceeds of Indebtedness
permitted under SECTION 5.14(B), not to exceed $45,000,000, plus
(y) the Step-Down Amount. The Revolving Credit Amount shall be
subject to reduction pursuant to SECTION 2.1.2."
3.4. The clause "Four Million Five Hundred Thousand Dollars
($4,500,000)" set forth twice in SECTION 5.24 of the Loan Agreement is
hereby amended and restated in each instance to read "Five Million Five
Hundred Thousand Dollars ($5,500,000)".
3.5. SECTION 5.25 is hereby amended and restated as follows:
"5.25 MINIMUM WORKING CAPITAL RATIO.
3
<PAGE>
Not permit the Working Capital Ratio as of the last day of each
calendar quarter ending during the periods (inclusive) set forth below to
be less than the amount set forth opposite such period:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------------------------------------------------------- -----------
<S> <C>
June 30, 1997 through September 30, 1999............................................. .20
December 31, 1999 and the last day of each calendar quarter thereafter............... .33
</TABLE>
3.6. The ratio "3.00:1.00" set forth in the first row of the table set
forth in SECTION 5.27 is hereby amended and restated to read "3.50:1.00".
3.7. The Maximum Revolving Loan Amount of each Lender shall be amended
and restated as set forth on the signature pages to this Amendment.
4. AMENDMENT CONDITIONS PRECEDENT. The amendments to the Loan Agreement
set forth in Section 3 of this Amendment shall become effective as of the date
of this Amendment upon the satisfaction of the following conditions precedent:
4.1. The Avtech Acquisition shall have been consummated on or prior to
July 7, 1998, and in accordance with the terms of the Avtech Acquisition
Documents and applicable law;
4.2. Borrower shall have executed and delivered to Agent for
distribution to the Lenders amended and restated Revolving Credit Notes in
form and substance substantially similar to Revolving Credit Notes
previously executed by the Borrower in connection with the execution of the
Loan Agreement, each in an amount equal to each Lender's Maximum Revolving
Loan Amount;
4.3. The Subsidiaries of Borrower (other than Avtech) shall have
executed and delivered a certain Reaffirmation of Guaranties, in the form of
EXHIBIT A to this Amendment;
4.4. No Event of Default or Unmatured Event of Default shall have
occurred and be continuing;
4.5. Borrower shall have delivered to Agent a certificate in form and
substance satisfactory to Agent of Borrower's Secretary or an Assistant
Secretary as to Borrower's certificate of incorporation and by-laws, the
incumbency of Borrower's officers and corporate resolutions adopted by
Borrower's board of directors with respect to this Amendment;
4.6. Agent shall have received an opinion of Borrower's legal counsel,
in form and substance substantially similar to a legal opinion delivered by
such counsel to Agent in connection with the execution and delivery of the
Loan Agreement;
4.7. Agent shall have received on or prior to the date hereof an
amendment fee (the "Amendment Fee") in the amount of $131,250, for further
distribution to the Lenders based on the amounts set forth below each
Lender's signature hereto; and
4.8. Agent shall have received on or prior to the date hereof, for its
own account, a fee in respect of the transactions contemplated hereby as set
forth in a certain letter agreement of even date herewith between Agent and
Borrower.
5. LOAN REALLOCATION. Effective immediately upon satisfaction of the
conditions precedent set forth in each of Sections 2 and 4, (i) Sumitomo shall
be deemed automatically to have sold and assigned to BoA, without recourse and
without representation and warranty, and BoA shall be deemed automatically to
have purchased and assumed from Sumitomo, that interest in Revolving Loans
funded by Sumitomo immediately prior to the satisfaction of such conditions
precedent so that, after giving effect to such purchase and sale, the ratio of
the amount of Revolving Loans funded by each Lender to the aggregate outstanding
amount of Revolving Loans equals such Lender's Pro Rata Share after giving
effect to the
4
<PAGE>
amendments contemplated by this Amendment and (ii) BoA shall wire transfer to
Sumitomo immediately available funds in full satisfaction of the purchases and
sales contemplated by the preceding clause (i).
6. COVENANT. Borrower covenants and agrees that Borrower shall (i) acquire
(either pursuant to stock purchase, statutory reverse stock split or merger of
Avtech into a wholly-owned Subsidiary of Borrower), within 30 days of the
effective date of the Avtech Acquisition, 100% of the outstanding capital stock
of Avtech not acquired by Borrower in connection with the Avtech Acquisition
(the "Follow-Up Acquisition") and (ii) deliver to Agent evidence reasonably
acceptable to Agent of the consummation of the Follow-Up Acquisition, together
with such additional documents, agreements, instruments and legal opinions
reasonably requested by Agent in connection with the consummation of the
Follow-Up Acquisition. Borrower acknowledges and agrees that a breach of any of
the foregoing covenants and agreements shall constitute an Event of Default.
7. MISCELLANEOUS.
7.1. EXPENSES. Borrower agrees to pay on demand all costs and expenses
of Agent (including Attorneys' Fees) in connection with the preparation,
negotiation, execution, delivery and administration of this Amendment and
all other instruments or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith. In addition, Borrower agrees
to pay, and save Agent and each Lender harmless from all liability for, any
stamp or other taxes which may be payable in connection with the execution
or delivery of this Amendment, the borrowings under the Loan Agreement, as
amended hereby, and the execution and delivery of any instruments or
documents provided for herein or delivered or to be delivered hereunder or
in connection herewith. All obligations provided in this SECTION 7.1 shall
survive any termination of this Amendment or the Loan Agreement as amended
hereby.
7.2. GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the State of Illinois.
7.3. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered, shall
be deemed to be an original, but all such counterparts shall together
constitute but one and the same Amendment.
7.4. REFERENCE TO LOAN AGREEMENT. Except as herein amended, the Loan
Agreement shall remain in full force and effect and is hereby ratified in
all respects. On and after the effectiveness of the amendments to the Loan
Agreement accomplished hereby, each reference in the Loan Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import, and
each reference to the Loan Agreement in any note and in any Related
Agreements, or other agreements, documents or other instruments executed and
delivered pursuant to the Loan Agreement, shall mean and be a reference to
the Loan Agreement, as amended by this Amendment.
7.5. SUCCESSORS. This Amendment shall be binding upon Borrower, each
Lender, Agent and their respective successors and assigns, and shall inure
to the benefit of Borrower, each Lender, Agent and their respective
successors and assigns.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and delivered at
Chicago, Illinois as of the date first above written.
<TABLE>
<S> <C> <C>
DECRANE AIRCRAFT HOLDINGS, INC., as Borrower
By
------------------------------------------
Its
------------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, successor-by-merger to Bank of
America Illinois, as Agent
By
------------------------------------------
Its
------------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, successor-by-merger to Bank of
America Illinois, as a Lender
By
------------------------------------------
Its
------------------------------------------
Maximum Revolving Loan Amount: $42,600,000
Share of Amendment Fee: $59,250
COMERICA BANK--CALIFORNIA, as a Lender
By
------------------------------------------
Its
------------------------------------------
MELLON BANK, N.A., as a Lender
By
------------------------------------------
Its
------------------------------------------
Maximum Revolving Loan Amount: $25,200,000
Share of Amendment Fee: $31,500
SUMITOMO BANK OF CALIFORNIA, as a Lender
By
------------------------------------------
Its
------------------------------------------
Maximum Revolving Loan Amount: $12,000,000
Share of Amendment Fee: $9,000
</TABLE>
6
<PAGE>
EXHIBIT A
REAFFIRMATION OF GUARANTIES
, 1998
Bank of America National Trust
and Savings Association, individually
and as agent ("Agent")
Comerica Bank--California
Mellon Bank, N.A.
Sumitomo Bank of California
Ladies and Gentlemen:
Each of the undersigned has executed and delivered to Agent, for your
collective benefit, a certain Guaranty dated as of April 15, 1997 (November 14,
1997, in the case of Audio International, Inc. and Audio International Sales,
Inc.) (each, a "Guaranty"). Each of the undersigned acknowledges receipt of
copies of (i) that certain Consent and Amendment No. 3 to Loan and Security
Agreement of even date herewith between you and DeCrane Aircraft Holdings, Inc.
(the "Amendment") and (ii) each additional instrument, agreement and document
required to be delivered to any of you pursuant to the terms of the Amendment
(the "Additional Documents"). Each of the undersigned hereby reaffirms the
validity of the Guaranty executed by such entity and its obligations thereunder,
in each case after giving effect to the execution and delivery of the Amendment
and the Additional Documents, and the consummation of the transactions
contemplated thereby.
<TABLE>
<S> <C> <C>
AEROSPACE DISPLAY SYSTEMS, INC.
CORY COMPONENTS, INC.
ELSINORE AEROSPACE SERVICES, INC.
ELSINORE ENGINEERING, INC.
HOLLINGSEAD INTERNATIONAL, INC.
TRI-STAR ELECTRONICS INTERNATIONAL, INC.
Each
By ----------------------------------------
Its
----------------------------------------
AUDIO INTERNATIONAL, INC.
AUDIO INTERNATIONAL SALES, INC.
Each
By ----------------------------------------
Its
----------------------------------------
</TABLE>
7
<PAGE>
EXHIBIT 99.2
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC.
2361 Rosecrans Ave., Suite 180
El Segundo, CA 90245
TRADED: NASDAQ: DAHX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD:
Robert A. Rankin Karen Taylor Moira Conlon Michaelle Burstin
Chief Financial Officer General Information Investor/Analyst Contact Media Contact
(310) 725-9123 (310) 442-0599 (310) 442-0599 (310) 442-0599
</TABLE>
FOR IMMEDIATE RELEASE
JUNE 26, 1998
DECRANE CLOSES ACQUISITION OF AVTECH
EL SEGUNDO, CA, JUNE 26, 1998--DeCrane Aircraft Holdings, Inc. (NASDAQ:
DAHX), a leading manufacturer of avionics components and an avionics systems
integrator for the commercial and high-end corporate aircraft industry, today
announced the closing of the previously announced acquisition of Avtech
Corporation, a Seattle, Washington provider of electronic systems for the
aerospace industry. Terms of the transaction were undisclosed.
DeCrane Chairman and Chief Executive Officer R. Jack DeCrane, stated,
"Acquiring Avtech further demonstrates our ability to enhance our growth through
acquisitions that considerably complement our current business mix. Among other
strategic and financial benefits, Avtech extends DeCrane's product and service
franchise in cockpit audio and communications, lighting, and power and control
areas, as well as strengthens our competitive standing in the original equipment
market, retrofit market and the aftermarket.
Avtech, founded in 1963, is well-known as a leader in the design,
development and manufacture of electronic systems for the aerospace industry.
Serving over 450 customers in 49 countries, Avtech products are supplied to
commercial, business, regional and commuter aircraft manufacturers and the
leading avionics manufacturers. An innovator in the aviation field, noteworthy
achievements by Avtech include introducing several new technologies to aircraft,
namely: the Digitally Controlled Audio Systems for the corporate market,
commuter market and Boeing; Electronic Ballasts; the Airborne Fax Machine; and
the Active Harmonic Filter.
Except for historical information contained herein, this document contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks
and uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein. Further, the
Company operates in an industry sector where securities values may be volatile
and may be influenced by regulatory and other factors beyond the Company's
control. Important factors that the Company believes might cause such
differences are discussed in the cautionary statements accompanying the
forward-looking statements in the Company's reports filed with the Securities
and Exchange Commission. In assessing forward-looking statements contained
herein, readers are urged to read carefully all cautionary statements contained
in those filings with the Securities and Exchange Commission.
DeCrane Aircraft Holdings, Inc. is a leading manufacturer of avionics
components and a provider of avionics systems integration services in certain
niche markets of the commercial aircraft and high-end corporate jet industries.
The Company's products and services typically are utilized to provide an
interface between an aircraft and its avionic systems.
For more information about DeCrane Aircraft Holdings, Inc. via facsimile
simply call 1-800-PRO-INFO and dial client code "DAHX".
<PAGE>
EXHIBIT 99.3
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC.
2361 Rosecrans Ave., Suite 180
El Segundo, CA 90245
TRADED: NASDAQ: DAHX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD:
Robert A. Rankin Karen Taylor Moira Conlon Michaelle Burstin
Chief Financial Officer General Information Investor/Analyst Contact Media Contact
(310) 725-9123 (310) 442-0599 (310) 442-0599 (310) 442-0599
</TABLE>
FOR IMMEDIATE RELEASE
JULY 1, 1998
DECRANE AIRCRAFT HOLDINGS ACQUIRES DETTMERS INDUSTRIES INC.,
DESIGNER AND MANUFACTURER OF CORPORATE JET SEATING
ACQUISITION HIGHLIGHTS:
- STRENGTHENS PRODUCT OFFERINGS IN THE AIRCRAFT CABIN
- INCREASES SALES TO EXISTING CLIENTS, INCLUDING DASSAULT/FALCON JET,
BOMBARDIER AND THE MAJOR MODIFICATION CENTERS
EL SEGUNDO, CA, JULY 1, 1998--DeCrane Aircraft Holdings, Inc. (NASDAQ:
DAHX), a leading manufacturer of avionics components and an avionics systems
integrator for the commercial and high-end corporate aircraft industry, today
announced the acquisition of Dettmers Industries Inc., a Florida-based
manufacturer of cabin interior products for the corporate jet market.
DETTMERS--KEY PLAYER IN CABIN INTERIORS
Dettmers Industries designs, manufactures and markets seating and other
cabin interior products for the corporate aviation industry, particularly to
aircraft completion centers. Dettmers is a certified FAA manufacturing and
repair station, which expedites approvals and completion dates. Dettmers has
been growing revenues in excess of 30% annually for the last three years, said
DeCrane.
"While several synergies have been identified in the sales and marketing
areas, the real attractiveness of the company is the potential for several new
seat designs that are currently coming to market. Therefore, the short-term
focus of the new subsidiary will be to qualify these new seat designs," said
DeCrane. "We believe the new motorized seat offered by Dettmers is among the
finest available, and has the potential to dominate the high-end executive
seating market for corporate jets," added DeCrane.
"Dettmers has considerable expertise in making highly functional, motorized
seating products for the corporate jet market," said DeCrane. "The recently
obtained order for the executive seating on five new Boeing BBJ aircraft is
evidence of the company's evolving status as one of the premier providers of
executive seating products," said DeCrane.
Dettmers sells its products to many of the same customers already serviced
by DeCrane, including Dassault, Bombardier and the major modification centers.
In addition to the obvious sales synergies, many of the products created by
DeCrane's Audio International and Avtech subsidiaries will be highly
complementary to Dettmers' product line, said DeCrane. Audio International
produces sound and cabin management systems, including in-flight entertainment
equipment, which is often housed in aircraft seating; Avtech makes audio,
lighting, power, communications and control equipment.
Dettmers will operate as a separate subsidiary of DeCrane. President Andrew
Perl will report directly to Chuck Becker, DeCrane's President and Chief
Operational Officer. Co-founder and Vice President of
<PAGE>
Product Development Peter Dettmers will continue in his role as the chief
technology officer of the company.
FITS DECRANE'S KEY ACQUISITION CRITERIA
DeCrane said he believes Dettmers' product line takes the company another
step forward by expanding the Company's product offerings for the high-end
corporate jet market to include seating and other cabinet interior products. The
industry is consolidating rapidly as the larger aircraft companies pare back the
number of vendors they are willing to buy from, thus simplifying their
purchasing operations. DeCrane is an industry leader in this consolidation
movement, acquiring companies that fit its acquisition criteria.
Generally speaking, DeCrane seeks companies that provide synergy with the
existing product line or that give the company new capabilities. DeCrane's
product line is well balanced and is used throughout the lifecycle of an
aircraft (OEM, aftermarket and retrofit market).
FORWARD LOOKING STATEMENTS
Except for historical information contained herein, this document contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks
and uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein. Further, the
Company operates in an industry sector where securities values may be volatile
and may be influenced by regulatory and other factors beyond the Company's
control. Important factors that the Company believes might cause such
differences are discussed in the cautionary statements accompanying the
forward-looking statements in the Company's reports filed with the Securities
and Exchange Commission. In assessing forward-looking statements contained
herein, readers are urged to read carefully all cautionary statements contained
in those filings with the Securities and Exchange Commission.
DeCrane Aircraft Holdings, Inc. is a leading manufacturer of avionics
components and a provider of avionics systems integration services in certain
niche markets of the commercial aircraft and high-end corporate jet industries.
The Company's products and services typically are utilized to provide an
interface between an aircraft and its avionic systems.
For more information about DeCrane Aircraft Holdings, Inc. via facsimile
simply call 1-800-PRO-INFO and dial client code "DAHX".
<PAGE>
EXHIBIT 99.4
<PAGE>
AVTECH CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants........................................................................ 1
Balance Sheets as of September 30, 1996 and 1997 and March 31, 1998...................................... 2
Statements of Income for the years ended September 30, 1995, 1996 and 1997, the six months ended March
31, 1997 (unaudited) and the six months ended March 31, 1998........................................... 3
Statements of Stockholders' Equity for the years ended September 30, 1995, 1996 and 1997 and the six
months ended March 31, 1998............................................................................ 4
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997, the six months ended March
31, 1997 (unaudited) and the six months ended March 31, 1998........................................... 5
Notes to Financial Statements............................................................................ 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Avtech Corporation
In our opinion, the accompanying balance sheets and the related statements
of income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Avtech Corporation at September 30,
1996 and 1997 and March 31, 1998, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997 and the
six months ended March 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
June 12, 1998
1
<PAGE>
AVTECH CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................................... $ 1,052 $ 4,136 $ 3,260
Accounts receivable, net of allowance for doubtful accounts of $20, $20 and $31 at
September 30, 1996 and 1997 and March 31, 1998, respectively..................... 7,398 4,928 6,648
Inventories........................................................................ 4,233 5,254 5,684
Prepaid expenses and other assets.................................................. 69 183 224
Deferred income taxes.............................................................. -- 247 735
--------- --------- -----------
Total current assets............................................................. 12,752 14,748 16,551
--------- --------- -----------
Property, plant and equipment
Land............................................................................... 431 791 791
Buildings and improvements......................................................... 2,411 4,685 4,967
Machinery and equipment............................................................ 2,764 3,005 3,378
Furniture, computer and other equipment............................................ 3,216 3,426 3,610
--------- --------- -----------
8,822 11,907 12,746
Less: Accumulated depreciation..................................................... (6,523) (7,050) (7,335)
--------- --------- -----------
2,299 4,857 5,411
Other assets
Patents, net of amortization....................................................... 5 4 4
Deferred income taxes.............................................................. -- 629 158
--------- --------- -----------
Total assets..................................................................... $ 15,056 $ 20,238 $ 22,124
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................................... $ 768 $ 1,388 $ 1,614
Accrued expenses................................................................... 2,120 4,043 4,371
Deferred income taxes.............................................................. 389 -- --
--------- --------- -----------
Total current liabilities........................................................ 3,277 5,431 5,985
--------- --------- -----------
Long-term liabilities
Deferred compensation.............................................................. 1,229 1,385 1,463
Other.............................................................................. 438 472 466
--------- --------- -----------
1,667 1,857 1,929
--------- --------- -----------
Commitments and contingencies (Note 8)............................................... -- -- --
--------- --------- -----------
Stockholders' equity
Common stock, no par value, 1,500,000 shares authorized; 323,541, 318,929 and
318,929 shares outstanding at September 30, 1996, 1997 and March 31, 1998,
respectively..................................................................... 237 232 232
Retained earnings.................................................................. 9,875 12,718 13,978
--------- --------- -----------
10,112 12,950 14,210
--------- --------- -----------
$ 15,056 $ 20,238 $ 22,124
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
AVTECH CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
YEAR ENDED SEPTEMBER 30, 31,
------------------------------- ----------------------
1995 1996 1997 1998
--------- --------- --------- 1997 ---------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales.................................................... $ 21,020 $ 28,797 $ 32,619 $ 15,281 $ 20,391
Cost of sales............................................ 12,333 15,967 20,422 9,243 12,942
--------- --------- --------- ----------- ---------
Gross profit......................................... 8,687 12,830 12,197 6,038 7,449
--------- --------- --------- ----------- ---------
Operating expenses
General and administrative............................. 1,991 1,992 2,758 1,269 1,387
Selling expenses....................................... 1,257 1,559 1,295 574 735
Research, development and engineering.................. 2,853 2,697 2,707 1,390 1,405
Employee stock ownership plan.......................... 1,200 1,000 1,200 600 600
Nonrecurring bonus..................................... -- -- -- -- 1,592
--------- --------- --------- ----------- ---------
7,301 7,248 7,960 3,833 5,719
--------- --------- --------- ----------- ---------
Income from operations................................... 1,386 5,582 4,237 2,205 1,730
--------- --------- --------- ----------- ---------
Other income (expense)
Interest expense....................................... (8) (8) (6) -- --
Gain on disposal of equipment.......................... -- 14 -- -- --
Interest income........................................ 46 30 269 134 128
Rental income, net..................................... -- -- 32 -- 54
--------- --------- --------- ----------- ---------
38 36 295 134 182
--------- --------- --------- ----------- ---------
Income before provision for federal income tax........... 1,424 5,618 4,532 2,339 1,912
Provision for federal income tax......................... 493 1,934 1,518 795 652
--------- --------- --------- ----------- ---------
Net income............................................... $ 931 $ 3,684 $ 3,014 $ 1,544 $ 1,260
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AVTECH CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
STATED
NUMBER OF VALUE OF
SHARES COMMON RETAINED
OUTSTANDING STOCK EARNINGS
----------- ----------- ---------
<S> <C> <C> <C>
Balance at September 30, 1994................................................... 323,541 $ 237 $ 5,260
Net income...................................................................... -- -- 931
----------- ----- ---------
Balance at September 30, 1995................................................... 323,541 237 6,191
Net income...................................................................... -- -- 3,684
----------- ----- ---------
Balance at September 30, 1996................................................... 323,541 237 9,875
Stock redemption................................................................ (4,612) (5) (171)
Net income...................................................................... -- -- 3,014
----------- ----- ---------
Balance at September 30, 1997................................................... 318,929 232 12,718
Net income...................................................................... -- -- 1,260
----------- ----- ---------
Balance at March 31, 1998....................................................... 318,929 $ 232 $ 13,978
----------- ----- ---------
----------- ----- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AVTECH CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH
YEAR ENDED SEPTEMBER 30, 31,
------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income.............................................. $ 931 $ 3,684 $ 3,014 $ 1,544 $ 1,260
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization......................... 587 582 528 268 285
Gain on sale of property and equipment................ -- (14) -- -- --
Deferred income tax provision......................... 54 947 (1,265) (1,825) (17)
Changes in assets and liabilities:
Accounts receivable................................. (1,797) (2,990) 2,470 3,062 (1,720)
Inventories......................................... (1,504) 198 (1,021) (825) (430)
Prepaid and other current assets.................... 63 (20) (114) 17 (41)
Accounts payable.................................... 400 (152) 620 777 226
Accrued expenses.................................... 1,620 (872) 2,153 2,141 422
--------- --------- --------- ----------- ---------
Net cash provided by (used in)
operating activities................................ 354 1,363 6,385 5,159 (15)
--------- --------- --------- ----------- ---------
Cash flows from investing activities
Purchases of property and equipment..................... (735) (509) (3,085) (260) (839)
Proceeds from sale of assets............................ -- 15 -- -- --
--------- --------- --------- ----------- ---------
Net cash used in investing activities................. (735) (494) (3,085) (260) (839)
--------- --------- --------- ----------- ---------
Cash flows from financing activities
Stock redemption........................................ -- -- (176) -- --
Capital lease obligations............................... (36) (36) (40) (20) (22)
--------- --------- --------- ----------- ---------
Net cash used in
financing activities................................ (36) (36) (216) (20) (22)
--------- --------- --------- ----------- ---------
Net (decrease) increase in cash and
equivalents............................................. (417) 833 3,084 4,879 (876)
Cash and equivalents at beginning
of the period........................................... 636 219 1,052 1,052 4,136
--------- --------- --------- ----------- ---------
Cash and equivalents at end of
the period.............................................. $ 219 $ 1,052 $ 4,136 $ 5,931 $ 3,260
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Avtech Corporation (the Company) is a custom design and manufacturing firm
established in 1963 to produce high-quality equipment for the aircraft industry.
In 1970, Avtech began to produce engineered products and has since focused its
engineering and product development efforts on responding to specifications from
original equipment aircraft manufacturers (OEMs). The Company's products fall
into five main categories:
1. Aircraft communication control equipment (including audio control units,
multiplexed audio systems and audio amplifiers).
2. Aircraft lighting controls (including ballasts, dimmers and flood lighting).
3. Power systems (including transformer rectifier units, power inverters and
battery chargers).
4. Airborne facsimile terminals (AvFax).
5. Special products (including PDX intercoms, liquid-gauging and fill control,
and frequency units).
FINANCIAL STATEMENT PRESENTATION
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
At September 30, 1996 and 1997 and March 31, 1998, the Company maintained
$549,000, $119,000 and $868,000 respectively, of its cash and cash equivalents
balances at one bank. At September 30, 1996 and 1997 and March 31, 1998, the
Company maintained $503,000, $4,017,000 and $2,392,000, respectively, in a money
market fund and bankers' acceptances.
RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK
Accounts receivable from trade customers are generally due within thirty
days. The Company performs periodic credit evaluations of its customers'
financial conditions and generally does not require collateral. All of the
Company's sales are to businesses directly associated with the aviation industry
(airlines, aircraft manufacturers, etc.). Approximately 70% of the Company's
sales are to customers based in the United States.
6
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
The cost of property, plant and equipment is depreciated over the estimated
useful lives of the related assets. Depreciation is computed using the
straight-line and accelerated methods over the following estimated lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings............................................................................. 20-39
Building improvements................................................................. 10-39
Machinery and equipment............................................................... 5
Furniture, computer and other equipment............................................... 5-7
</TABLE>
Maintenance and repairs are charged to operations when incurred. Additions
and improvements are capitalized. When property, plant and equipment are sold or
otherwise disposed of, the asset account and related accumulated depreciation
account are relieved, and any gain or loss is included in operations.
INVENTORIES
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Costs of manufactured inventories include all
direct materials, labor and an allocation of overhead. Market represents the
lower of replacement cost or estimated net realizable value.
REVENUE RECOGNITION
Revenues from the sale of manufactured products are recorded when shipped.
Reimbursements for nonrecurring engineering costs, which are expensed as
incurred, are included in revenues at the time a negotiated settlement is
reached with the customer. The Company's nonrecurring engineering revenues for
the years ended September 30, 1995, 1996 and 1997 and the six months ended March
31, 1998 were $1,257,000, $4,042,000, $527,000 and $138,000, respectively.
Included within accounts receivable at September 30, 1996 are $3,384,000 of
unbilled receivables which were collected in fiscal year 1997.
INCOME TAXES
Deferred income taxes are determined using the liability method. A deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in the asset and/or liability for
deferred taxes.
STOCK OPTION PLAN
As permitted under Statement of Financial Accounting Standards No., 123,
"Accounting for Stock-Based Compensation" (SFAS 123), the Company measures
compensation expense related to the employee stock option plan utilizing the
intrinsic value method as prescribed by Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees".
7
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCRUED WARRANTIES
The Company sells a majority of its products to customers along with various
repair or replacement warranties. The terms of the warranties vary according to
the customer and/or the product involved. The most common warranty period is the
earlier of:
a. 36 months from the date of delivery to the operator, or;
b. 42 months from the date of manufacture
Provisions for estimated future warranty costs are made in the period
corresponding to the sale of the product. Classification between short and
long-term warranty obligations is estimated based on historical trends.
UNAUDITED INTERIM RESULTS
The financial information for the six months ended March 31, 1997 is
unaudited. In the opinion of the Company, the unaudited financial information is
presented on a basis consistent with the audited financial statements and
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for such interim period. The
results of operations for the interim periods are not necessarily indicative of
results of operations for the full year.
NOTE 2 - INVENTORIES
Inventories at September 30, 1996 and 1997 and March 31, 1998 consist of the
following (amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Raw materials and components....................................................... $ 2,488 $ 2,617 $ 3,427
Work in process.................................................................... 1,285 2,014 1,754
Finished goods..................................................................... 460 623 503
--------- --------- -----------
$ 4,233 $ 5,254 $ 5,684
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
The Company owns property located immediately adjacent to its main facility.
The property is not currently used for any rental or productive activity. In
1990, the property was condemned by the local authorities and is considered
unsuitable for habitation in its current state. The current carrying value of
$62,000 represents the original cost of the land and is lower than its estimated
net realizable value.
In 1997, the Company purchased a 20,275 square foot office building and an
adjacent vacant lot for investment purposes. The net book value of the property
was $2,134,000 and $2,098,000 at September 30, 1997 and March 31, 1998,
respectively. The Company leases the office space to tenants under one to three-
8
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED)
year noncancelable operating leases. At March 31, 1998, the building was fully
occupied. Minimum future rentals to be received on noncancelable leases are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
- ------------------------------------------------------------------
<S> <C>
1998.............................................................. $ 128
1999.............................................................. $ 20
</TABLE>
The Company leases equipment under a five-year lease term. Based on the
provisions of Statement No. 13, issued by the Financial Accounting Standards
Board, these leases meet the criteria of capital leases and, accordingly, have
been recorded as such. These assets are stated on the balance sheet at their
capitalized cost of $194,000. Depreciation of $172,000 has been recognized
through March 31, 1998. The present value of remaining minimum lease payments at
March 31, 1998 was approximately $25,000.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses at September 30, 1996 and 1997 and March 31, 1998 consist
of the following (amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Employee compensation and related taxes............................................ $ 875 $ 2,556 $ 3,531
Employee stock option plan contribution............................................ 1,000 1,200 600
Current portion of warranty reserve................................................ 204 240 240
Other.............................................................................. 41 47 --
--------- --------- -----------
$ 2,120 $ 4,043 $ 4,371
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 5 - DEFINED CONTRIBUTION PLANS
The Company sponsors an employee stock ownership plan (ESOP) for the benefit
of employees with twelve or more months of continuous service. Contributions are
made to the plan at the discretion of the Company's Board of Directors. The
Company's contributions for the years ended September 30, 1995, 1996 and 1997
and the six months ended March 31, 1998 were $1,200,000, $1,000,000, $1,200,000
and $600,000, respectively.
The Company also sponsors a cash or deferred compensation (401k) plan for
the benefit of eligible employees. Under the plan, employees may elect to defer
a portion of their compensation (subject to statutory limitations).
Discretionary contributions by the Company may be made when authorized by the
Board of Directors. No such contributions were made during the years ended
September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998.
9
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - FEDERAL INCOME TAXES
The provision (benefit) for federal income taxes is comprised of the
following (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------- SIX MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
--------- --------- --------- -------------------
<S> <C> <C> <C> <C>
Current............................................................ $ 439 $ 987 $ 2,783 $ 669
Deferred........................................................... 54 947 (1,265) (17)
--------- --------- --------- -----
$ 493 $ 1,934 $ 1,518 $ 652
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
The provision for federal income tax expense approximates the federal
statutory rate for all periods presented. The Company is not required to pay
state income taxes.
Deferred tax assets and liabilities at September 30, 1996 and 1997 and March
31, 1998 include the following (amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Reserves............................................................................ $ 335 $ 393 $ 382
Compensatory stock options.......................................................... 416 471 498
Capitalized inventories............................................................. 10 12 13
--------- --------- -----
761 876 893
DEFERRED TAX LIABILITIES
Deferred revenue.................................................................... (1,150) -- --
--------- --------- -----
$ (389) $ 876 $ 893
--------- --------- -----
--------- --------- -----
</TABLE>
The classification in the balance sheet between current and noncurrent
deferred tax assets is based on the classification of the related asset that
gives rise to the temporary difference. A deferred tax asset that is not related
to an asset is classified according to the expected reversal date of the
temporary difference.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has commitments based on open purchase orders arising out of its
normal business operations. As of September 30, 1996 and 1997 and March 31,
1998, these commitments were $5,080,000, $6,760,000 and $9,151,000,
respectively.
TERMINATION FOR CONVENIENCE CLAUSES
The Company routinely enters into contractual commitments with customers to
design and manufacture parts. These contracts contain "termination for
convenience" clauses that permit recovery of costs incurred by the Company if
the customer terminates the contract prior to its completion. These recoveries
are included in sales when billed.
10
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASING ARRANGEMENTS
The Company leases a building under a five-year operating lease. The lease
calls for monthly payments of $5,000 plus utilities, taxes and maintenance and
expires in April 2001. The lessor has the right to terminate the lease at
anytime by giving the Company at least twelve months written notice. The Company
subleases a portion of its facilities under an operating lease that expires
December 1998. The following is net rental expense under operating leases for
the years ended September 30, 1995, 1996 and 1997 and the six months ended March
31, 1998 (amounts in thousands):
<TABLE>
<CAPTION>
SIX
YEAR ENDED SEPTEMBER 30, MONTHS
ENDED
------------------------------- MARCH 31,
1995 1996 1997 1998
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Rent expense.................................................................. $ 60 $ 60 $ 60 $ 30
Less: Sublease rentals........................................................ (7) (11) (10) (5)
--- --- --- ---
$ 53 $ 49 $ 50 $ 25
--- --- --- ---
--- --- --- ---
</TABLE>
The following is a schedule by years of the future minimum rentals under
this lease (amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, LESSEE SUBLEASE NET
- ------------------------------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
1998........................................................... $ 60 $ 10 $ 50
1999........................................................... 60 11 49
2000........................................................... 60 11 49
2001........................................................... 60 11 49
----- --- ---------
$ 240 $ 43 $ 197
----- --- ---------
----- --- ---------
</TABLE>
NOTE 8 - ECONOMIC DEPENDENCE
A material part of the Company's business is dependent on one customer, the
loss of which could have a material effect on the Company. For the years ended
September 30, 1995, 1996 and 1997 and the six months ended March 31, 1998,
approximately 29.5%, 24%, 46.9% and 41.7%, respectively, of revenues were
attributable to this customer. At September 30, 1996 and 1997 and March 31,
1998, accounts receivable from this customer represented approximately 41.1%,
23.4% and 30%, respectively, of total accounts receivable.
NOTE 9 - STOCK OPTION PLANS
Prior to 1993, the Company implemented a nonqualified compensatory stock
option plan with the President. Under this Plan, options to purchase 90,000
shares of the Company's stock were granted at an option price of $2.70 per
share. These options are currently exercisable by the President.
During the year ended September 30, 1994, the Company and three key
employees entered into employment contracts which voided all prior compensatory
stock option plans other than that of the President's. Under these new
contracts, the Company granted 20,000 shares to each of the three employees at
an exercise price of $15 per share. Fair market value was $28 per share at the
date of the grant. Each
11
<PAGE>
AVTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - STOCK OPTION PLANS (CONTINUED)
employee still employed at September 30, 1998, is entitled to exercise his
option to purchase 20,000 fully vested shares. Accordingly, the Company has
expensed $156,000 during each of the years ended September 30, 1995, 1996 and
1997 and $78,000 for the six months ended March 31, 1998. These shares, when
exercised, cannot be sold until September 30, 2003. The Company has the first
right to purchase the shares upon exercise but is not obligated to do so.
The accumulated expense resulting from the difference between the exercise
prices and fair market values at the respective date of grant has been
classified as a long-term liability in deferred compensation.
NOTE 10 - ADDITIONAL CASH FLOW INFORMATION
Supplementary cash flow information for the years ended September 30, 1995,
1996 and 1997 and the six months ended March 31, 1998 is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED
--------------------------------- MARCH 31,
1995 1996 1997 1998
----- --------- --------- -------------------
<S> <C> <C> <C> <C>
Cash paid during the period for:
Capital leases..................................................... $ 36 $ 36 $ 40 $ 22
--- --------- --------- -----
--- --------- --------- -----
Interest........................................................... $ 10 $ 7 $ 5 $ 1
--- --------- --------- -----
--- --------- --------- -----
Income taxes....................................................... $ -- $ 1,449 $ 2,900 $ 693
--- --------- --------- -----
--- --------- --------- -----
</TABLE>
NOTE 11 - SUBSEQUENT EVENT
In May 1998, the Company signed a definitive purchase agreement whereby all
of the outstanding shares of the Company would be acquired by DeCrane Aircraft
Holdings, Inc. The transaction is expected to close by June 30, 1998. The effect
of the transaction has not been reflected in the accompanying accounts.
12
<PAGE>
EXHIBIT 99.5
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Consolidated Financial Data presents the following
pro forma data for the Company: (i) the results of operations for the year ended
December 31, 1997 and the three months ended March 31, 1998; and (ii) the
financial position as of March 31, 1998. The Unaudited Pro Forma Consolidated
Financial Data should be read in conjunction with the Company's: (i) audited
consolidated financial statements and notes thereto included in the Form 10-K
for the year ended December 31, 1997; and (ii) unaudited consolidated financial
statements and notes thereto included in the Form 10-Q for the quarter ended
March 31, 1998. Capitalized terms, unless defined herein, have the meaning
ascribed to them in the aforementioned Forms 10-K and 10-Q.
The following Unaudited Pro Forma Consolidated Financial Data for the year
ended December 31, 1997 and the three months ended March 31, 1998 presents the
results of operations of the Company as if the following transactions had
occurred as of January 1, 1997: (i) the acquisition of Avtech Corporation
("Avtech") for $84.7 million in cash, including an estimated $1.3 million of
acquisition related costs; (ii) the Audio International acquisition, which
occurred on November 14, 1997 as described in the Company's Form 10-K; (iii) the
Recapitalization, the IPO, and the application of the net proceeds therefrom,
which were completed on April 16, 1997 as described in the Company's Form 10-K;
and (iv) the sale of 2,206,177 shares of common stock, and the application of
the net proceeds therefrom, which was completed in April 1998 (the "Follow-On
Equity Offering"), as described in the Company's Form 10-Q. The balance sheet
data as of March 31, 1998 is adjusted to reflect the following transactions as
if they occurred on March 31, 1998: (i) the Avtech acquisition; and (ii) the
Company's Follow-On Equity Offering and the application of the net proceeds
therefrom. The data does not include the acquisition of Dettmers Industries Inc.
("Dettmers") because inclusion would not have a material effect on such data.
The Unaudited Pro Forma Consolidated Financial Data presenting the results
of operations for the year ended December 31, 1997 reflects the unaudited
consolidated financial statements of Audio International for the period from
January 1, 1997 through November 14, 1997, the date on which it was acquired.
The Avtech results of operations data for all periods is unaudited and was
derived from audited and unaudited financial statements as of and for the
appropriate periods since it was not acquired until June 26, 1998. Avtech's
fiscal year end, prior to its acquisition by the Company, was September 30th.
The balance sheet of Avtech as of March 31, 1998 was derived from its audited
financial statements for the six months ended March 31, 1998.
The Company believes the Unaudited Pro Forma Consolidated Financial Data
contains all adjustments necessary for a fair presentation of the above
described transactions. The pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
With respect to the Avtech pro forma acquisition adjustments described in the
accompanying notes, the allocation of the purchase price is preliminary and
subject to final determination by the Company. The Unaudited Pro Forma
Consolidated Financial Data is presented for illustrative purposes only and is
not necessarily indicative of the results of operations that would have occurred
had the transactions been consummated on the dates indicated, or that may be
obtained in future periods.
1
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ACQUISITIONS ACQUISITIONS,
DECRANE -------------------------- IPO AND
AIRCRAFT AUDIO FOLLOW-ON
HOLDINGS, INTERNATIONAL, AVTECH EQUITY OFFERING
INC. INC. CORPORATION ADJUSTMENTS PRO FORMA
--------- ------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.............................................. $ 108,903 $ 12,431 $ 34,689 $ (252)(2) $ 155,771
Cost of sales......................................... 80,247 7,345 22,396 (139)(3) 109,849
--------- ------------- ----------- ------- -----------
Gross profit (loss)................................... 28,656 5,086 12,293 (113) 45,922
Selling, general and administrative expenses.......... 15,756 3,983 7,036 (1,503)(4) 25,272
ESOP contribution..................................... -- -- 1,200 (1,200)(5) --
Nonrecurring bonus expense............................ -- -- -- -- --
Amortization of intangible assets..................... 905 -- -- 2,599(7) 3,504
--------- ------------- ----------- ------- -----------
Operating income...................................... 11,995 1,103 4,057 (9) 17,146
Interest expense (income)............................. 3,154 8 (305) 4,939(8) 7,796
Other expenses (income)............................... 243 5 (59) -- 189
--------- ------------- ----------- ------- -----------
Income (loss) before provision for income taxes and
extraordinary item.................................. 8,598 1,090 4,421 (4,948) 9,161
Provision for income taxes (benefit).................. 3,344 365 1,487 (797)(9) 4,399
--------- ------------- ----------- ------- -----------
Income (loss) before extraordinary item (1)........... $ 5,254 $ 725 $ 2,934 $ (4,151) $ 4,762
--------- ------------- ----------- ------- -----------
--------- ------------- ----------- ------- -----------
Income (loss) applicable to common
stockholders (1).................................... $ 2,609 $ 725 $ 2,934 $ (1,506)(10) $ 4,762
--------- ------------- ----------- ------- -----------
--------- ------------- ----------- ------- -----------
Income (loss) per common share (1)
Basic............................................... $ 0.69 $ 0.63
Diluted............................................. 0.62 0.61
Weighted average number of common shares outstanding
Basic............................................. 3,803 7,510
Diluted........................................... 4,892 7,812
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Consolidated Financial Data.
2
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
ACQUISITION
AND
DECRANE ACQUISITION FOLLOW-ON
AIRCRAFT ----------- EQUITY
HOLDINGS, AVTECH OFFERING
INC. CORPORATION ADJUSTMENTS PRO FORMA
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.................................................... $ 29,128 $ 10,741 $ (62)(2) $ 39,807
Cost of sales............................................... 20,141 6,448 (49)(3) 26,540
----------- ----------- ------- -----------
Gross profit (loss)......................................... 8,987 4,293 (13) 13,267
Selling, general and administrative expenses................ 4,879 1,699 (463)(4) 6,115
ESOP contribution........................................... -- 300 (300)(5) --
Nonrecurring bonus expense.................................. -- 1,592 (1,592)(6) --
Amortization of intangible assets........................... 379 -- 503(7) 882
----------- ----------- ------- -----------
Operating income............................................ 3,729 702 1,839 6,270
Interest expense (income)................................... 786 (19) 1,141(8) 1,908
Other income................................................ (17) (27) -- (44)
----------- ----------- ------- -----------
Income (loss) before provision for income taxes............. 2,960 748 698 4,406
Provision for income taxes (benefit)........................ 1,272 256 408(9) 1,936
----------- ----------- ------- -----------
Net income (loss)........................................... $ 1,688 $ 492 $ 290 $ 2,470
----------- ----------- ------- -----------
----------- ----------- ------- -----------
Income (loss) per common share(1)
Basic................................................... $ 0.32 $ 0.33
Diluted................................................. 0.30 0.32
Weighted average number of common shares outstanding
Basic................................................... 5,319 7,525
Diluted................................................. 5,626 7,832
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Consolidated Financial Data.
3
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
DECRANE FOLLOW-ON ACQUISITION
AIRCRAFT EQUITY ------------------------
HOLDINGS, OFFERING AVTECH ACQUISITION
INC. ADJUSTMENTS CORPORATION ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents....................... $ 1,178 $ -- $ 3,260 $ (2,167) 14) $ 2,271
Accounts receivable, net........................ 19,839 -- 6,648 -- 26,487
Inventories..................................... 28,221 -- 5,684 -- 33,905
Income taxes refundable......................... -- -- -- 3,561(15) 3,561
Deferred tax assets............................. -- -- 735 1,425(16) 2,160
Prepaid expenses and other current assets....... 1,160 -- 224 -- 1,384
---------- ----------- ----------- ----------- -----------
Total current assets.......................... 50,398 -- 16,551 2,819 69,768
Property and equipment, net....................... 13,261 -- 5,411 4,710(17) 23,382
Other assets, principally intangibles, net........ 39,940 (358) 11) 162 62,742(18) 102,486
---------- ----------- ----------- ----------- -----------
$ 103,599 $ (358) $ 22,124 $ 70,271 $ 195,636
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings........................... $ 432 $ -- $ -- $ -- $ 432
Current portion of long-term obligations........ 857 -- -- -- 857
Accounts payable................................ 7,991 -- 1,614 -- 9,605
Accrued expenses................................ 6,226 -- 4,371 (600) 19) 9,997
Income taxes payable............................ 1,800 -- -- -- 1,800
---------- ----------- ----------- ----------- -----------
Total current liabilities..................... 17,306 -- 5,985 (600) 22,691
---------- ----------- ----------- ----------- -----------
Long-term liabilities
Long-term obligations........................... 43,196 (35,200) 12) -- 84,943(20) 92,939
Deferred income taxes........................... 1,880 -- -- 1,601(21) 3,481
Deferred compensation........................... -- -- 1,463 (1,463) 22) --
Minority interest and other long-term
liabilities................................... 93 -- 466 -- 559
---------- ----------- ----------- ----------- -----------
Total long-term liabilities................... 45,169 (35,200) 1,929 85,081 96,979
---------- ----------- ----------- ----------- -----------
Stockholders' equity
Common stock.................................... 53 22(13) 232 (232) 23) 75
Additional paid-in capital...................... 51,096 34,820(13) -- -- 85,916
Retained earnings (deficit)..................... (9,756) -- 13,978 (13,978) 23) (9,756)
Accumulated other comprehensive
income........................................ (269) -- -- -- (269)
---------- ----------- ----------- ----------- -----------
Total stockholders' equity.................... 41,124 34,842 14,210 (14,210) 75,966
---------- ----------- ----------- ----------- -----------
$ 103,599 $ (358) $ 22,124 $ 70,271 $ 195,636
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma
Consolidated Financial Data.
4
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Reflects income (loss) before the effect of a $2.1 million extraordinary
loss incurred as a result of the write-off, net of an income tax benefit, of
deferred financing costs, unamortized original issue discounts, a prepayment
penalty and other related expenses incurred as a result of the repayment of
debt by the Company with the net proceeds from its IPO. See the consolidated
financial statements and related notes thereto included in the Company's
Form 10-K.
(2) Reflects the elimination of intercompany sales between the Company and
Avtech.
(3) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects the elimination of intercompany cost of sales aggregating
$252,000 and $62,000, respectively, between the Company and Avtech, offset
by an increase in depreciation expense to reflect an increase in the fair
value of depreciable assets acquired.
(4) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects a decrease of $1.5 million and $467,000, respectively, in
compensation expense to reflect the resignation of certain former employees
and changes to employment agreements for certain remaining employees of the
acquired companies offset by an increase in depreciation expense to reflect
an increase in the fair value of depreciable assets acquired.
(5) Reflects a reduction in expense attributable to the termination of Avtech's
Employee Stock Ownership Plan ("ESOP") concurrent with the acquisition.
(6) Reflects a reduction in expense attributable to nonrecurring bonuses awarded
prior to, and in anticipation of, the acquisition by the Company.
(7) For the year ended December 31, 1997 and the three months ended March 31,
1998, reflects an increase in amortization expense pertaining to the
amortization of goodwill on a straight-line basis over 30 years of (i) $20.1
million of goodwill related to the Audio International acquisition, which
occurred on November 14, 1997; and (ii) $60.4 million of goodwill related to
the Avtech acquisition, which occurred on June 26, 1998.
(8) For the year ended December 31, 1997, represents: (i) a decrease in interest
expense of $1.3 million to reflect the refinancing of existing debt with the
$28.9 million net proceeds from the IPO and $12.3 million Senior Credit
Facility borrowings; and (ii) a net increase in Senior Credit Facility
interest expense of $6.3 million to reflect borrowings of $24.7 and $84.7
million for Audio International and Avtech acquisitions, respectively, net
of the application of the $34.8 million net proceeds from the Follow-On
Equity Offering to reduce Senior Credit Facility borrowings.
For the three months ended March 31, 1998, represents a net increase in
Senior Credit Facility interest expense of $1.1 million to reflect
borrowings of $84.7 million for Avtech acquisition, net of the application
of the $34.8 million net proceeds from the Follow-On Equity Offering to
reduce Senior Credit Facility borrowings.
(9) Represents a decrease in the provision for income taxes as a result of a
decrease in pro forma taxable income. The percent decrease differs from the
amount expected by applying the U.S. federal statutory rate due to
depreciation and amortization not deductible for income tax purposes.
5
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEET
MARCH 31, 1998
(10) Reflects the elimination of preferred stock dividends and adjustment to the
redemption value of mandatorily redeemable common stock warrants as a result
of the Recapitalization and IPO. See the consolidated financial statements
and related notes thereto included in the Company's Form 10-K.
(11) Reflects the reclassification of capitalized costs associated with the
Follow-On Equity Offering to additional paid-in capital as reduction of the
net proceeds received therefrom.
(12) Reflects the repayment of Senior Credit Facility borrowings with the net
proceeds from the Follow-On Equity Offering.
(13) Reflects the sale by the Company of common stock in the Follow-On Equity
Offering.
(14) Reflects a decrease in cash to adjust to the actual cash balance acquired
upon closing.
(15) Reflects federal income taxes refundable as a result of a tax deduction
created upon the exercise of stock options by former Avtech employees
immediately prior to its acquisition by the Company. The stock option
exercise created a $25.4 million tax deduction for Avtech immediately prior
to its acquisition. The tax deduction may be used for both carryback and
carryforward purposes to reduce Avtech's taxable income. The carryforward
will expire in 2013.
(16) Reflects the incremental deferred income tax benefit the Company estimates
it will receive during the next twelve-month period as a result of utilizing
the loss carryforward created upon the exercise of stock options by former
Avtech employees immediately prior to its acquisition by the Company.
(17) Reflects a $3.4 million and $1.3 million increase in the fair value of land
and buildings, respectively, acquired in the Avtech acquisition.
(18) Reflects: (i) $60.4 million of goodwill attributable to the Avtech
acquisition; (ii) a $2.2 million long-term deferred income tax asset the
Company estimates it will realize as a result of utilizing the loss
carryforward created upon the exercise of stock options by former Avtech
employees immediately prior to its acquisition by the Company; and (iii)
$250,000 of Senior Credit Facility deferred financing costs associated with
amendment fees and expenses to provide financing for the Avtech acquisition.
(19) Reflects the elimination of Avtech's accrued ESOP contribution liability
paid by Avtech prior to its acquisition by the Company.
(20) Reflects Senior Credit Facility borrowings of $84.7 million to fund the
Avtech acquisition and $250,000 for Senior Credit Facility deferred
financing costs.
(21) Reflects the deferred tax liability resulting from the $4.7 million
increase in the fair value of land and buildings acquired in the Avtech
acquisition that is not deductible for income tax purposes.
(22) Reflects the elimination of Avtech's deferred compensation liability paid
by Avtech prior to its acquisition by the Company.
(23) Reflects the elimination of Avtech's common stock and retained earnings
upon acquisition by the Company.
6
