DECRANE AIRCRAFT HOLDINGS INC, SC 14D9/A, 1998-08-20

DECRANE AIRCRAFT HOLDINGS INC
SC 14D9/A, 1998-08-20
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

Previous: DECRANE AIRCRAFT HOLDINGS INC, SC 14D1/A, 1998-08-20

Next: MONEY STORE D C INC, 8-K, 1998-08-20

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

SCHEDULE 14D-9

(AMENDMENT NO. 1)

Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934

------------------------

DECRANE AIRCRAFT HOLDINGS, INC.
(NAME OF SUBJECT COMPANY)

DECRANE AIRCRAFT HOLDINGS, INC.
(NAME OF PERSON(S) FILING STATEMENT)

------------------------

COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)

243662 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)

------------------------

R. JACK DECRANE
Chairman of the Board and Chief Executive Officer
DeCrane Aircraft Holdings, Inc.
2361 Rosecrans Avenue, Suite 180
El Segundo, California 90245-4910
(310) 725-9123

(Name, address and telephone number of person
authorized to receive notices and communications
on behalf of the person(s) filing statement)

WITH COPIES TO:

<TABLE>
<S> <C>
MELVIN EPSTEIN, ESQ. STEPHEN A. SILVERMAN, ESQ.
Stroock & Stroock & Lavan LLP Spolin & Silverman
180 Maiden Lane 100 Wilshire Boulevard, Suite 940
New York, New York 10038-4982 Santa Monica, California 90401
(212) 806-5400 (310) 576-1221
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NO. 1 TO SCHEDULE 14D-9

This Amendment supplements and amends as Amendment No. 1 the
Solicitation/Recommendation Statement on Schedule 14D-9, originally filed on
July 22, 1998 (the "Schedule 14D-9"), by DeCrane Aircraft Holdings, Inc., a
Delaware corporation (the "Company"), relating to the tender offer by DeCrane
Acquisition Co., a Delaware corporation (the "Purchaser"), a company formed by
DLJ Merchant Banking Partners II, L.P. and affiliated funds ("DLJ"), disclosed
in a Tender Offer Statement on Schedule 14D-1, dated July 22, 1998, to purchase
all outstanding shares of common stock, par value $0.01 per share (the
"Shares"), of the Company at a price per Share of $23.00, net to the seller in
cash, without interest thereon (the "Offer Price"), upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated July 22, 1998, and
the related Letter of Transmittal (which together constitute the "Offer").
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Schedule 14D-9

ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.

(a) On or about June 10, 1998, Charles Becker, President and Chief Operating
Officer of the Company, purchased 100 shares of common stock of the Company in
the public markets. On or about June 10, 1998, Robert A. Rankin, Chief Financial
Officer and Secretary of the Company (presently on administrative leave),
purchased 100 shares of common stock of the Company in the public markets.

(b) Mitchell I. Quain, a director of the Company, has indicated his intent
to donate 5,220 shares of common stock of the Company to four charitable
organizations prior to the expiration of the Offer to Purchase: The University
of Pennsylvania, St. Luke's Foundation, Horace Mann School and the Greenwich
Jewish Study Group, Inc.

ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.

Item 8 of Schedule 14D-9 is hereby amended and supplemented by addition
of the following information:

BACKGROUND OF THE OFFER

FAIRNESS OPINION. WDR has delivered its written opinion, dated July 21,
1998, confirming its oral opinion of July 16, 1998, to the effect that, and
based upon and subject to the assumptions, limitations and qualifications set
forth therein, as of the date thereof, the Offer Price to be received in the
Offer is fair, from a financial point of view to the stockholders of the Company
(the "Fairness Opinion"). The Fairness Opinion does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote or whether such stockholder should tender Shares in the Offer. The
full text of the Fairness Opinion, which sets forth a description of the
assumptions made, general procedures followed matters considered, and
limitations on the review undertaken, is set out in Exhibit 5 of Schedule 14D-9.
Stockholders or other interested parties are urged to read the Fairness Opinion
carefully in its entirety, especially with regard to the assumptions made and
matters considered by WDR. The summary of the Fairness Opinion set forth in this
Amendment is qualified in its entirety by reference to the full text of such
Fairness Opinion.

In rendering its Fairness Opinion, WDR assumed, at the direction of the
Special Committee, without independent verification, the accuracy and
completeness, in all material respects, of all the financial and other
information that was available to it from public sources or that was provided to
it by the Company or its representatives. The Fairness Opinion was necessarily
based upon economic, monetary, market, and other conditions as in effect, and
the information made available to WDR as of, the date of such opinion. In
addition, with the consent of the Special Committee, WDR did not make any
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of the Company. With respect to the financial
estimates (including the effects of assumed savings) provided to or otherwise
reviewed by or discussed with it, WDR assumed, with the consent of the Special
Committee, that they were reasonably prepared on the basis of and reflecting the
best currently available estimates and judgments of the Company's management as
to the future financial performance of the Company and that those estimates
would be materially achieved in the amounts and at the times stated therein. It
should be understood that,
<PAGE>
although subsequent developments may affect the Fairness Opinion, WDR does not
have any obligation to update, revise, or reaffirm the Fairness Opinion.

WDR is an internationally recognized investment banking firm which, as part
of its investment banking business, regularly engages in the evaluation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. The Special Committe selected WDR on the basis of its
experience and independence. In the past, WDR and its predecessors have provided
investment banking services to the Company and have received customary
compensation for such services. In the ordinary course of business, WDR and its
affiliates may actively trade or hold the equity securities of the Company and
DLJ for their own account or the accounts of their customers and, accordingly,
may at any time hold a long or short position in such securities.

Pursuant to the engagement letter between the Company and WDR, the Company
has paid to WDR for its services a fee of $1,300,000. The Company has also
agreed to reimburse WDR for its expenses, including attorneys' fees reasonably
incurred in connection with its engagement, and to indemnify WDR against certain
liabilities and reasonable expenses related to, or arising out of or in
connection with the engagement of WDR under the engagement letter, including
liabilities under the federal securities laws in connection with its services.

In arriving at the Fairness Opinion, WDR did not assign any particular
weight or factor to any matter considered by it, but rather made qualitative
judgments based upon its experience in providing such opinions and on then
existing economic, monetary, market and other conditions as to the significance
and relevance of each analysis and factor. Accordingly, WDR believes that its
analysis must be considered as a whole and that selecting portions of its
analyses and the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying its Fairness Opinion. In its analyses, with the consent of the
Special Committee, WDR made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company or WDR. Any assumed estimates
contained in WDR's analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. Such estimates relating to the value of a
business or securities do not purport to be appraisals or necessarily reflect
the prices at which companies or securities may actually be sold.

No company, transaction or business used in the analyses described under
"Analysis of Certain Other Publicly Traded Companies" and "Analysis of Selected
Generally Comparable Precedent Transactions" below is identical to the Company.
Accordingly, an analysis of the results thereof necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors which could affect the transaction or the
public trading or other values of the company or companies to which they are
being compared. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of assuring comparable acquisition
or comparable company data.

In connection with rendering the Fairness Opinion, WDR employed a variety of
evaluation methods. The material valuation methods are summarized below.

(a) ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. Using publicly
available information, WDR compared selected historical share prices, and
operating and financial ratios for the Company to the corresponding data and
ratios for selected companies in the aviation services industry whose securities
are publicly traded and that WDR believed were generally comparable in certain
respects to the Company in that they were companies in the business of providing
services to the aircraft industry or providing aviation products. Such data and
ratios included (A) the ratio of Enterprise Value (defined as market
capitalization of the common stock plus the principal amount of total debt
outstanding less cash and cash equivalents) to (i) Revenue, (ii) operating
earnings before depreciation, amortization, interest and taxes ("EBITDA") and

2
<PAGE>
(iii) operating earnings before interest and taxes ("EBIT") and (B) the ratio of
the price per share of the common stock to (i) the latest twelve months ("LTM")
earnings per share ("EPS"), (ii) 1998 estimated Calendar Year EPS and (iii) 1999
estimated Calendar Year EPS. The companies selected for this comparison were AAR
Corp., Aviall, Inc., Aviation Sales Co., AVTEAM, Inc., First Aviation Services
Inc., Kellstrom Industries, Inc. and Triumph Group, Inc. Although there are no
companies that directly compare to the Company, WDR believes that the business
fundamentals of Aviall, Inc., First Aviation Services Inc., and Triumph Group,
Inc. ("Most Comparable Companies") may be more closely aligned with the
Company's business fundamentals than the others.

An analysis of Enterprise Value to LTM Revenue for the Most Comparable
Companies yielded a mean multiple of 1.0x compared to the Company multiple of
1.7x LTM Revenue at the Offer Price. Enterprise Value to LTM EBITDA for these
companies yielded a mean multiple of 9.2x compared to the Company multiple of
9.6x LTM EBITDA at the Offer Price. Enterprise Value to LTM EBIT for these
companies yielded a mean multiple of 10.9x compared to the Company multiple of
13.6x LTM EBIT at the Offer Price. An analysis of the July 15, 1998 stock price
to LTM EPS for these companies yielded a mean multiple of 14.0x compared to the
Company multiple of 28.0x the Offer Price. An analysis of the July 15, 1998
stock price to the estimated Calendar Year 1998 EPS for these companies yielded
a mean multiple of 13.9x compared to the Company multiple of 17.0x the Offer
Price. An analysis of the July 15, 1998 stock price to the estimated Calendar
Year 1999 EPS for these companies yielded a mean multiple of 9.9x compared to
the Company multiple of 13.2x the Offer Price.

An analysis of Enterprise Value to LTM Revenue for AAR Corp., Aviation Sales
Co., AVTEAM, Inc. and Kellstrom Industries, Inc. (the "Less Comparable
Companies") yielded a mean multiple of 2.2x compared to the Company multiple of
1.7x LTM Revenue at the Offer Price. Enterprise Value to LTM EBITDA for these
companies yielded a mean multiple of 13.7x compared to the Company multiple of
9.6x LTM EBITDA at the Offer Price. Enterprise Value to LTM EBIT for these
companies yielded a mean multiple of 15.6x compared to the Company multiple of
13.6x LTM EBIT at the Offer Price. An analysis of the July 15, 1998 stock price
to LTM EPS for these companies yielded a mean multiple of 25.9x compared to the
Company multiple of 28.0x the Offer Price. An analysis of the July 15, 1998
stock price to the estimated Calendar Year 1998 EPS for these companies yielded
a mean multiple of 18.7x compared to the Company multiple of 17.0x the Offer
Price. An analysis of the July 15, 1998 stock price to the estimated Calendar
Year 1999 EPS for these companies yielded a mean multiple of 14.3x compared to
the Company multiple of 13.2x the Offer Price.

In arriving at its opinion, WDR took into account that, in general, the
multiples available to the Company at the Offer Price compared favorably to the
multiples derived for the selected companies. WDR noted that no company utilized
in the above comparable company analysis is identical to the Company.
Accordingly, an analysis of the foregoing is not purely mathematical and
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect their public trading value.

(b) ANALYSIS OF SELECTED GENERALLY COMPARABLE PRECEDENT TRANSACTIONS. WDR
conducted a review of selected aviation services industry transactions in which
a majority ownership position was purchased. These transactions were analyzed to
provide a reference point as to the enterprise valuation multiples for the
Company. From the transactions selected, there was a range of multiples, which
was related to the quality and size of the companies. WDR calculated multiples
for each transaction based on the ratios of the Transaction Value (defined as
purchase price of equity plus the principal amount of total debt outstanding
less cash and cash equivalents) to each of the target company's pre-acquisition
LTM Revenue, LTM EBITDA, and LTM EBIT. An analysis of Transaction Value to LTM
Revenue for these companies yielded a range of relevant multiples from a low of
0.4x to a high of 1.8x with a median of 0.7x compared to the Company multiple of
1.7x LTM Revenue at the Offer Price. Transaction Value to LTM EBITDA for these
companies yielded a range of relevant multiples from a low of 4.5x to a high of
13.1x with a median of 6.9x compared to the Company multiple of 9.6x LTM EBITDA
at the Offer Price. Enterprise Value to

3
<PAGE>
LTM EBIT for these companies yielded a range of relevant multiples from a low of
6.0x to a high of 15.4x with a median of 10.9x compared to the Company multiple
of 13.6x LTM EBIT at the Offer Price.

In arriving at its opinion, WDR took into account that, in general, the
multiples available to the Company at the Offer Price compared favorably to the
multiples derived for the selected transactions. WDR noted that no transaction
utilized in the above selected acquisition transaction analysis is identical to
the Merger. Accordingly, an analysis of the foregoing is not purely mathematical
and involves complex considerations and judgments concerning differences in
financial and operating characteristics of the acquired companies in such
transactions and other factors that could affect their acquisition and public
trading values.

(c) DISCOUNTED CASH FLOW ANALYSIS. WDR performed a discounted cash flow
analysis for the Company on a stand-alone basis based on projections provided by
management of the Company through 1999 and with the consent of the Board of
Directors extended for an additional three years based on certain assumptions
including, among others, assumptions as to internal growth rate and operating
profit (the "Company Projections"). The discounted cash flow analysis estimated
the theoretical present value of the Company based on the sum of: (i) the
discounted cash flows that the Company could generate over the five years ending
2002 and (ii) a terminal value assuming that the Company performs in accordance
with the Company Projections.

The terminal value of the Company was based upon a multiple applied to EBIT.
This terminal value and the cash flows generated by the Company were discounted
to derive the Enterprise Value of the Company. The value of the Shares was
calculated by taking the Enterprise Value and subtracting the principal amount
of the total debt outstanding and adding and cash equivalents. Using discount
rates ranging from 10% to 13%, and exit EBIT multiples from 8x to 12x to
calculate the terminal values, WDR estimated that, based on discounted cash flow
analysis of the Company Projections, the Enterprise Value of the Company ranged
from $184.5 million to $297.6 million and the per Share value of the Company
ranged from $11.83 to $26.29.

(d) PREMIUM ANALYSIS. WDR analyzed the premium offered per share of Company
common stock over selected periods and compared it to the average historical
premium of selected transactions over the same time periods. Based upon the
Offer Price on July 16, 1998, the premium to the closing price one day prior was
30.5%, to one week prior was 27.8%, and to one month prior was 29.6%, compared
to 30.6%, 35.0%, and 38.0% respectively for the average of the selected
historical transactions. The Offer Price represented a 9.5% premium to the
Company's 52 week high stock price and a 55.9% premium to Company's 52 week low
stock price.

The presentation of WDR at the July 15, 1998 meeting of the Special
Committee and the July 16, 1998 meeting of the full Board of Directors included
a description of its analyses as set forth above.

SUBSEQUENT DEVELOPMENTS

(a) OTHER INDICATIONS OF INTEREST. On July 17, 1998, following the
announcement of the Merger Agreement, an independent third party ("Potential
Bidder 1") advised the Company of its interest in pursuing an alternative
transaction with the Company. Potential Bidder 1 indicated its interest was in
pursuing a possible merger that would qualify as a pooling of interests
transaction, but its interest was subject, among other things, to a satisfactory
due diligence review. Accordingly, on July 23, 1998, the Company, after
receiving the advice of counsel, obtained a confidentiality agreement from
Potential Bidder 1 on terms substantially identical to the confidentiality
agreement between the Company and DLJ. Potential Bidder 1 then began its due
diligence investigation. Recently, however, Potential Bidder 1 informed WDR that
it had concluded, as a result of recent stock market conditions affecting the
market value of its own shares, that it was not in a position to pursue an
acquisition of the Company.

4
<PAGE>
On or about August 4, 1998, another independent third party ("Potential
Bidder 2") advised the Company that it might be interested in making an offer to
purchase the Shares for cash. On the advice of counsel, the Board of Directors
decided to authorize the Company to furnish information to Potential Bidder 2,
subject to an appropriate confidentiality agreement. Such an agreement was
executed and information was furnished, but Potential Bidder 2 subsequently
indicated to WDR that it believed that it was not in a position to pursue the
transaction.

(b) COMPENSATION LITIGATION. On August 5, 1998, the Company and R. Jack
DeCrane, its Chief Executive Officer, were served in an action filed in state
court in California by Robert A. Rankin, the Company's Chief Financial Officer
and Secretary, claiming that he is due additional compensation in the form of
stock options, and claiming fraud, negligence and breach of contract in
connection therewith. Mr. Rankin has advised the Company that his claim for
additional compensation is justified based on his opinion that the Company's
common stock is worth $29.00 per Share. The action seeks not less than $1.5
million plus punitive damages and costs. The action is in the early stages of
development and discovery has not yet been conducted; the Company intends to
vigorously defend against the claim. Mr. Rankin, has been placed on
administrative leave with pay. John R. Hinson, the Company's Vice President for
Planning and Business Development, has been appointed as the interim Chief
Financial Officer and acting Secretary of the Company.

(c) SHAREHOLDERS' LITIGATION. On July 21, 1998, an action entitled TAAM
ASSOCIATES, INC. V. DECRANE, ET AL. (the "Action"), was commenced in Delaware
Court of Chancery on behalf of a purported class of stockholders of the Company
against the Company, its directors and various officers, DLJ and the Purchaser,
alleging, among other things, that the directors had breached their fiduciary
duties by entering into the Merger Agreement without engaging in an auction or
"active market check" and, therefore, did not adequately inform themselves in
agreeing to terms that are unfair and inadequate from the standpoint of the
Company's stockholders. On July 24, 1998, the plaintiffs thereafter amended the
complaint. The amended class action complaint (the "Amended Complaint") alleges,
among other things, that the Company's initial Schedule 14D-9 failed to disclose
adequately (i) material information regarding the equity participation of
management following the Merger, (ii) the claimed failure to adequately shop the
Company, (iii) complete financial information, (iv) the claimed unreasonableness
of the termination fees, (v) details regarding the Company's financial
projections and (vi) details regarding WDR's analysis. The Amended Complaint
seeks a p reliminary and permanent injunction barring defendants from proceeding
with the Merger, or if the Merger is consummated, an order rescinding it or
awarding damages, together with interest; and an award of attorneys' and
litigation expenses.

Plaintiff stipulated to the dismissal without prejudice of the claims
against those defendants who were officers, but not directors, of the Company.
Although defendants have not been required to answer the Amended Complaint, if
required to answer the Amended Complaint, the Company would deny and understands
that other defendants would deny the allegations of wrongdoing and would assert
various defenses.

Without admitting any wrongdoing in the Action, in order to avoid the burden
and expense of further litigation, the Company, DLJ, the Purchaser and the
individual defendants reached an agreement in principle with the plaintiffs
which contemplates settlement of the Action.

The Company, DLJ, the Purchaser and the individual defendants and the
plaintiffs entered into a memorandum of understanding (the "Memorandum of
Understanding"), pursuant to which the parties would, subject to certain facts
being confirmed through discovery which has not been completed, enter into a
settlement agreement which would be subject to approval by the Court of
Chancery. The Memorandum of Understanding contemplates that the settlement would
provide: (a) that the Company promptly amend the Schedule 14D-9 dated July 22,
1998 to include information regarding the financial results of the Company for
the quarter ended June 30, 1998, and to provide further disclosure (1)
concerning further contacts and negotiations with other potential acquirors of
the Company, (2) regarding the analysis

5
<PAGE>
presented to and considered by the Special Committee in evaluating the Merger
Agreement, (3) the Special Committee's conclusions regarding the later
assertions by Mr. Rankin relating to the Fairness Opinion (as described below),
and (4) regarding financial projections disclosed to DLJ or other potential
acquirors of the Company; (b) that the Company will use its reasonable best
efforts to mail such amendment to the Company's stockholders as soon as
practicable; and (c) reasonably promptly following the execution of the
Memorandum of Understanding by the parties, the Company shall publicly disclose
the terms of the proposed settlement set forth therein in a manner deemed
reasonable by the Company, and (d) for a complete release and settlement of all
claims, whether asserted directly, derivatively or otherwise, against
defendants, or any of their affiliates, directors, officers, employees or agents
arising out of the facts set forth in the complaint. The released claims will
include any claims that could be raised as a result of the matters described in
this Amendment.

The Company, DLJ, the Purchaser and the individual defendants and the
plaintiffs agreed that the settlement outlined above is fair, in the best
interest of the Company's stockholders, and confers a substantial benefit on the
Company and its stockholders. Pursuant to the Memorandum of Understanding, a
draft of this amended Schedule 14D-9 was provided to plaintiffs' lead counsel to
review and comment upon prior to the initial filing with the Commission. The
Memorandum of Understanding contemplates that, in connection with the benefit
conferred, plaintiffs' counsel will apply to the Court of Chancery for an award
of attorney's fees and litigation expenses in an amount not exceeding $375,000,
which application, the defendants have agreed not to oppose.

(d) FAIRNESS OPINION. Following the execution and delivery of the Merger
Agreement and the delivery of the Fairness Opinion, Robert A. Rankin, the
Company's Chief Financial Officer (who has brought suit against the Company in a
compensation dispute, as described above) advised the Company, its counsel, and
WDR that he had "serious concerns about the accuracy and reliability of" the
Fairness Opinion. He questioned the accuracy of the presentation of certain
financial data to the Board of Directors related to the Fairness Opinion,
whether the appropriate comparable transactions had been used by WDR and certain
other aspects of WDR's presentation. WDR informed the members of the Board of
Directors, that, in its judgment, the purported concerns raised by Mr. Rankin
had no material impact on its analysis and WDR again reviewed its selection of
the comparable transactions and the other aspects of its methodology. The Board
of Directors and the Company's senior management agreed with WDR's assessment of
Mr. Rankin's concerns.

Also subsequent to the delivery of the Fairness Opinion, WDR and the Special
Committee became aware that certain members of senior management, at the end of
June 1998, had prepared a set of projected consolidated income and cash flow
statements and balance sheets of the Company for the five year period ended
December 31, 2002 (the "Five-Year Projections") and that the Five-Year
Projections had been included in materials made available to DLJ and the
Purchaser, subsequent to the execution of the Merger Agreement, and to Potential
Bidder 1 and Potential Bidder 2. The Five-Year Projections (which are different
from the projections described in the Offer) assumed an internal growth rate in
the Company's operating income of more than 20%, significantly higher than the
Company Projections. As a result, the Five-Year Projections showed a
significantly higher EBIT than that relied on by WDR in preparing the discounted
cash flow calculations used in its analysis.

The members of the Special Committee reviewed the Five-Year Projections and
conducted extensive interviews of Mr. DeCrane, the Chief Executive Officer and
Messrs. R.G. MacDonald and John R. Hinson, respectively, the Vice Chairman of
the Board and the interim Chief Financial Officer of the Company. Messrs.
DeCrane, MacDonald and Hinson confirmed that the Five-Year Projections do not
represent the views of senior management because (i) they employed assumptions
as to the future development of certain of the Company's operations and certain
of the Company's markets that are overly optimistic and an internal growth rate
significantly greater than historical experience, with the result that EBIT
amounts were also significantly greater, and (ii) the management of the
Company's business units had not participated in their preparation. Attorneys
representing Mr. Rankin in litigation wrote to counsel

6
<PAGE>
for the Special Committee and, through Company counsel, were invited to submit
any additional information for the Committee's consideration. The Special
Committee discussed with WDR the results of its investigation at a meeting with
WDR. The Special Committee concluded that the Five-Year Projections (which had
been delivered to WDR after it rendered the Fairness Opinion) were not reliable
or representative of the Company management's views of the Company and that they
did not provide a basis for questioning the Fairness Opinion. The Special
Committee advised the other members of the Board of Directors to that effect,
and they agreed. The Special Committee also discussed with WDR, at the same
meeting, the condition of the equity markets since July 16, 1998.

ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.

<TABLE>
<S> <C>
Exhibit 1. Merger Agreement dated as of July 16, 1998, by and between
DeCrane Acquisition Co. and DeCrane Aircraft Holdings, Inc.*

Exhibit 2. Pages 7 through 17 of the Proxy Statement dated June 2,
1998, relating to its 1998 Annual Meeting of Stockholders
held on June 17, 1998 at DeCrane Aircraft Holdings, Inc.*

Exhibit 3. Employment Agreement between DeCrane Aircraft Holdings, Inc.
and R. Jack DeCrane, dated as of July 17, 1998.*

Exhibit 4. Confidentiality Agreement, dated as of June 15, 1998,
between DeCrane Aircraft Holdings, Inc. and DLJ Merchant
Banking II, L.P.*

Exhibit 5. Opinion of Warburg Dillon Read LLC to the Board of Directors
of DeCrane Aircraft Holdings, Inc. dated July 21, 1998.*

Exhibit 6. Letter of the Board of Directors of DeCrane Aircraft
Holdings, Inc. addressed to the stockholders of DeCrane
Aircraft Holdings, Inc., dated July 22, 1998.*

Exhibit 7. Joint Press Release dated July 17, 1998 of DeCrane Aircraft
Holdings, Inc. and DLJ Merchant Banking Partners II, L.P.*

Exhibit 8. The Quarterly Report of the Company on Form 10-Q for the
quarterly period ended June 30, 1998.

Exhibit 9. Amended Class Action Complaint.

Exhibit 10 Memorandum of Understanding.
</TABLE>

- ------------------------

* Previously filed with the Schedule 14D-9.

7
<PAGE>
SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.

Dated: August 19, 1998

<TABLE>
<S> <C> <C>
DECRANE AIRCRAFT HOLDINGS, INC.

By: /s/ R. JACK DECRANE
-----------------------------------------
R. Jack DeCrane
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
</TABLE>

<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-Q

---------------

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998

Commission File Number 0-22371

------------------------

DECRANE AIRCRAFT HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 34-1645569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

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)

------------------------

(NOT APPLICABLE)

(Former address and telephone number of principal executive offices, if changed
since last report)

------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/ Yes / / No

The number of shares of Registrant's Common Stock, $.01 par value,
outstanding as of July 31, 1998 was 7,524,740 shares.

<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997............................ 1

Consolidated Statements of Operations for the three months and six months ended June 30, 1998 and
1997........................................................................................... 2

Consolidated Statements of Stockholders' Equity for the six months ended June 30, 1998........... 3

Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997............ 4

Condensed Notes to Consolidated Financial Statements............................................. 5

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 11

PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS................................................................................ 15

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................. 15

ITEM 5. OTHER INFORMATION................................................................................ 15

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits......................................................................................... 16

Reports on Form 8-K.............................................................................. 16
</TABLE>

i
<PAGE>
ITEM 1. FINANCIAL STATEMENTS

DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............. $ 2,337 $ 206
Accounts receivable, net.............. 25,857 18,152
Inventories........................... 35,109 25,976
Income taxes refundable............... 4,368 --
Prepaid expenses and other current
assets.............................. 2,875 782
----------- ------------
Total current assets................ 70,546 45,116
Property and equipment, net............. 23,815 14,054
Other assets, principally intangibles,
net................................... 101,248 39,967
----------- ------------
Total assets...................... $195,609 $ 99,137
----------- ------------
----------- ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings................. $ 90 $ 568
Current portion of long-term
obligations......................... 857 858
Accounts payable...................... 8,157 8,032
Accrued expenses...................... 11,597 6,911
Income taxes payable.................. 3,175 3,975
----------- ------------
Total current liabilities........... 23,876 20,344
----------- ------------
Long-term liabilities
Long-term obligations................. 93,027 37,412
Other long-term liabilities........... 523 96
Deferred income taxes................. 521 1,758
----------- ------------
Total long-term liabilities......... 94,071 39,266
----------- ------------

Commitments and contingencies........... -- --

Stockholders' equity
Undesignated preferred stock, $.01 par
value, 10,000,000 shares authorized;
none issued and outstanding......... -- --
Common stock, $.01 par value,
9,924,950 shares authorized;
7,524,740 and 5,318,563 shares
issued and outstanding as of June
30, 1998 and December 31, 1997,
respectively........................ 75 53
Additional paid-in capital............ 85,928 51,057
Accumulated deficit................... (8,084) (11,444)
Accumulated other comprehensive income
(deficit)........................... (257) (139)
----------- ------------
Total stockholders' equity.......... 77,662 39,527
----------- ------------
Total liabilities and
stockholders' equity............ $195,609 $ 99,137
----------- ------------
----------- ------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

1
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................ $ 29,854 $ 28,130 $ 58,982 $ 54,248
Cost of sales........................... 20,134 20,916 40,275 41,023
----------- ----------- ---------- ----------
Gross profit........................ 9,720 7,214 18,707 13,225
----------- ----------- ---------- ----------
Operating expenses
Selling, general and administrative
expenses............................ 5,302 3,838 10,181 7,222
Amortization of intangible assets..... 382 203 761 410
----------- ----------- ---------- ----------
Total operating expenses............ 5,684 4,041 10,942 7,632
----------- ----------- ---------- ----------
Income from operations.................. 4,036 3,173 7,765 5,593
Other expenses (income)
Interest expense...................... 383 692 1,169 2,284
Terminated debt offering expenses..... 600 -- 600 --
Other expenses (income)............... (41) 132 (70) 14
Minority interest..................... 28 24 40 55
----------- ----------- ---------- ----------
Income before provision for income taxes
and extraordinary item................ 3,066 2,325 6,026 3,240
Provision for income taxes.............. 1,394 871 2,666 1,157
----------- ----------- ---------- ----------
Income before extraordinary item........ 1,672 1,454 3,360 2,083
Extraordinary loss from debt
refinancing, net of income tax
benefit............................... -- 2,078 -- 2,078
----------- ----------- ---------- ----------
Net income (loss)....................... 1,672 (624) 3,360 5
Adjustment to redemption value of
mandatorily redeemable common stock
warrants.............................. -- (2,203) -- (2,203)
Cumulative convertible preferred stock
dividends............................. -- (62) -- (442)
----------- ----------- ---------- ----------
Net income (loss) applicable to common
stockholders.......................... $ 1,672 $ (2,889) $ 3,360 $ (2,640)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Income per common share
Basic
Income (loss) before extraordinary
item.............................. $ .23 $ (.18) $ .53 $ (.25)
Extraordinary loss from debt
refinancing....................... -- (.47) -- (.91)
----------- ----------- ---------- ----------
Net income (loss)................... $ .23 $ (.65) $ .53 $ (1.16)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Diluted
Income (loss) before extraordinary
item.............................. $ .22 $ (.18) $ .50 $ (.25)
Extraordinary loss from debt
refinancing....................... -- (.47) -- (.91)
----------- ----------- ---------- ----------
Net income (loss)................... $ .22 $ (.65) $ .50 $ (1.16)
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Weighted average number of common and
dilutive common equivalent shares
outstanding
Basic............................... 7,421 4,442 6,376 2,276
Diluted............................. 7,734 4,442 6,687 2,276
Pro forma for the Recapitalization, as
adjusted for the Initial Public
Offering
Income applicable to common
stockholders........................ $ 1,672 $ 1,568 $ 3,360 $ 2,983
Income per common share
Basic............................... $ .23 $ .30 $ .53 $ .56
Diluted............................. $ .22 $ .28 $ .50 $ .53
Weighted average number of common and
dilutive common equivalent shares
outstanding
Basic................................. 7,421 5,302 6,376 5,302
Diluted............................... 7,734 5,576 6,687 5,576
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

2
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------- ---------------------- ADDITIONAL ACCUMULATED OTHER
NUMBER OF NUMBER OF PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME (DEFICIT)
------------- ----------- --------- ----------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997.... -- $ -- 5,318,563 $ 53 $ 51,057 $ (11,444) $ (139)
Comprehensive income
Net income (Unaudited)...... -- -- -- -- -- 3,360 --
Translation adjustment
(Unaudited)............... -- -- -- -- -- -- (118)
Stock option compensation
expense (Unaudited)......... -- -- -- -- 78 -- --
Sale of common stock
(Unaudited)................. -- -- 2,206,177 22 34,793 -- --
--- ----- --------- --- ----------- ------------ -----
Balance, June 30, 1998
(Unaudited)................. -- $ -- 7,524,740 $ 75 $ 85,928 $ (8,084) $ (257)
--- ----- --------- --- ----------- ------------ -----
--- ----- --------- --- ----------- ------------ -----

TOTAL
---------
<S> <C>
Balance, December 31, 1997.... $ 39,527
---------
Comprehensive income
Net income (Unaudited)...... 3,360
Translation adjustment
(Unaudited)............... (118)
---------
3,242
Stock option compensation
expense (Unaudited)......... 78
Sale of common stock
(Unaudited)................. 34,815
---------
Balance, June 30, 1998
(Unaudited)................. $ 77,662
---------
---------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

3
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income.............................................................................. $ 3,360 $ 5
Adjustments to reconcile net income to net cash (used for) provided by operating
activities
Depreciation and amortization......................................................... 2,966 2,656
Extraordinary loss from debt refinancing.............................................. -- 2,078
Deferred income taxes................................................................. (1,219) 439
Unrealized (gain) loss on forward foreign exchange contracts.......................... (71) 302
Other, net............................................................................ (88) 55
Changes in assets and liabilities
Accounts receivable................................................................. (2,154) (946)
Inventories......................................................................... (3,058) (2,265)
Prepaid expenses and other assets................................................... (643) 368
Accounts payable.................................................................... (1,451) 1,278
Accrued expenses.................................................................... 2,316 (940)
Income taxes payable................................................................ (778) (62)
---------- ----------
Net cash (used for) provided by operating activities.............................. (820) 2,968
---------- ----------
Cash flows from investing activities
Purchase of stock of Avtech Corporation, net of cash acquired........................... (83,599) --
Purchase of net assets of Dettmers Industries Inc., net of cash acquired................ (2,145) --
Capital expenditures.................................................................... (1,102) (2,253)
Other, net.............................................................................. 175 --
---------- ----------
Net cash used for investing activities............................................ (86,671) (2,253)
---------- ----------

Cash flows from financing activities
Sale of common stock and application of the net proceeds
Net proceeds from the sale of common stock............................................ 34,815 29,220
Net borrowings (repayments) under senior credit facility.............................. (34,815) 12,334
Repayment of debt..................................................................... -- (42,160)
Revolving line of credit borrowings to finance acquisitions............................. 85,744 --
Net borrowings under revolving line of credit agreements................................ 5,358 1,879
Principal payments on capitalized lease and other long-term obligations................. (1,156) (1,048)
Promissory note principal payments...................................................... -- (956)
Payment of deferred financing costs..................................................... (311) --
Other, net.............................................................................. (18) 31
---------- ----------
Net cash provided by (used for) financing activities.............................. 89,617 (700)
---------- ----------
Effect of foreign currency translation on cash............................................ 5 (34)
---------- ----------
Net increase (decrease) in cash and cash equivalents...................................... 2,131 (19)
Cash and cash equivalents at beginning of period.......................................... 206 320
---------- ----------
Cash and cash equivalents at end of period................................................ $ 2,337 $ 301
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

4
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1--CONSOLIDATED FINANCIAL STATEMENTS

The information included in this Form 10-Q should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the audited financial statements and notes thereto included in
the Company's Form 10-K for the year ended December 31, 1997.

The consolidated financial information as of June 30, 1998 and for the three
months and six months ended June 30, 1998 and 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 periods. The results of operations for interim
periods are not necessarily indicative of results of operations for the full
year. Certain reclassifications have been made to prior periods' financial
information to conform to the 1998 presentation.

NOTE 2--SALE OF COMMON STOCK

In April 1998, the Company sold 2,206,177 shares of common stock for $17.00
per share ("Follow-On Equity Offering"). Net proceeds from the Follow-On Equity
Offering of $34,815,000 were used to partially repay borrowings outstanding
under the Company's senior credit facility.

NOTE 3--INCOME PER COMMON SHARE

As described in the Company's Form 10-K for the year ended December 31,
1997, the holders of certain securities agreed to a plan for the
recapitalization of the Company (the "Recapitalization") during 1997. Completion
of the Recapitalization was a condition to the consummation of the Company's
initial public offering (the "IPO") and, was effective concurrent therewith. The
IPO was consummated on April 16, 1997. Since the Company's historical capital
structure is not indicative of its structure after the Recapitalization and IPO,
pro forma income per share is presented for 1997 and reflects the
Recapitalization, the IPO and the application of the proceeds therefrom, as if
both had occurred January 1, 1997.

Income per common share ("EPS") has been computed pursuant to the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
which became effective after December 15, 1997; all periods prior thereto have
been restated to conform with the provisions of this statement.

The following table provides a reconciliation of both income and the number
of common shares used in the computations of "basic" EPS, which utilizes the
weighted average number of common shares

5
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 3--INCOME PER COMMON SHARE (CONTINUED)
outstanding without regard to dilutive potential common shares, and "diluted"
EPS, which includes all such shares. All amounts are in thousands, except per
share data, and are unaudited.

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1997 1997
---------------------- ----------------------
1998 AS REPORTED PRO FORMA 1998 AS REPORTED PRO FORMA
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) applicable to common shares-- Numerator
Before extraordinary item.......................... $ 1,672 $ 1,454 $ 1,568 $ 3,360 $ 2,083 $ 2,983
Adjustment to redeemable warrant redemption
value............................................ -- (2,203) -- -- (2,203) --
Preferred stock dividends.......................... -- (62) -- -- (442) --
--------- ----------- --------- --------- ----------- ---------
Income (loss) applicable to common shares
(basic)........................................ 1,672 (811) 1,568 3,360 (562) 2,983

Cumulative convertible preferred stock dividends... -- -- -- -- -- --
--------- ----------- --------- --------- ----------- ---------
Income (loss) applicable to common shares
(diluted)...................................... $ 1,672 $ (811) $ 1,568 $ 3,360 $ (562) $ 2,983
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
Shares--Denominator
Weighted average common shares outstanding
(basic).......................................... 7,421 4,442 5,302 6,376 2,276 5,302
Add dilutive effect of
Preferred stock outstanding prior to
conversion..................................... -- 320 -- -- 1,126 --
Common stock options............................. 313 274 274 311 274 274
Warrants outstanding prior to cancellation,
conversion or exercise......................... -- 198 71 -- 445 71
Less antidilutive effect of potential common
shares........................................... -- (792) (71) -- (1,845) (71)
--------- ----------- --------- --------- ----------- ---------
Weighted average common shares outstanding
(diluted)...................................... 7,734 4,442 5,576 6,687 2,276 5,576
--------- ----------- --------- --------- ----------- ---------
--------- ----------- --------- --------- ----------- ---------
EPS--Income (loss) before extraordinary item
Basic.............................................. $ .23 $ (.18) $ .30 $ .53 $ (.25) $ .56
Diluted............................................ $ .22 $ (.18) $ .28 $ .50 $ (.25) $ .53
</TABLE>

Pro forma for the Recapitalization and IPO assumes each occurred on January
1, 1997. Therefore, pro forma income per common share is computed using pro
forma income before adjustment to redemption value of redeemable warrants and
preferred stock dividends. Pro forma income also reflects the sale by the
Company of 2,700,000 shares of common stock in the IPO and the application of
the net proceeds therefrom.

6
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 4--ACQUISITIONS

AVTECH

On June 26, 1998, the Company purchased substantially all of the common
stock of Avtech Corporation ("Avtech"). Avtech is a manufacturer of avionics
components and an avionics systems integrator for the commercial and high-end
corporate jet aircraft industries.

The total purchase price was $84,693,000 in cash at closing, including an
estimated $1,250,000 of acquisition related costs. The acquisition was financed
with borrowings under the Company's senior credit facility. The acquisition was
accounted for as a purchase and the $57,911,000 difference between the purchase
price and the fair value of the net assets acquired was recorded as goodwill and
is being amortized on a straight-line basis over 30 years.

The consolidated balance sheet as of June 30, 1998 reflects the Avtech
assets and liabilities acquired and the consolidated results of operations
include the operating results of Avtech subsequent to June 25, 1998.

DETTMERS

On June 30, 1998, the Company purchased certain assets, subject to certain
liabilities assumed, of Dettmers Industries Inc. ("Dettmers"). Dettmers is a
manufacturer of seats for high-end corporate jet aircraft.

The total purchase price was $2,314,000 in cash at closing, including an
estimated $141,000 of acquisition related costs, plus contingent consideration
aggregating a maximum $2,000,000 payable over four years based on future
attainment of defined performance criteria during each of the years in the four-
year period ending December 31, 2002. The acquisition was financed with
borrowings under the Company's senior credit facility. The acquisition was
accounted for as a purchase and the $2,068,000 difference between the purchase
price, excluding contingent consideration, and the fair value of the net assets
acquired was recorded as goodwill and is being amortized on a straight-line
basis over 30 years. The amount of contingent consideration paid in the future,
if any, will increase goodwill and will be amortized prospectively over the
remaining period of the initial 30-year term.

The consolidated balance sheet as of June 30, 1998 reflects the Dettmers
assets and liabilities acquired and the consolidated results of operations
include the operating results of Dettmers subsequent to June 29, 1998.

PRO FORMA RESULTS OF OPERATIONS FOR ACQUISITIONS, RECAPITALIZATION, IPO AND
FOLLOW-ON EQUITY OFFERING

Unaudited pro forma consolidated results of operations are presented in the
table below for the year ended December 31, 1997 and the six months ended June
30, 1997 and 1998. For all periods presented, the results of operations are pro
forma for the Recapitalization, the IPO, the Follow-On Equity Offering (Note 2),
and the application of the net proceeds therefrom. For the year ended December
31, 1997 and six months ended June 30, 1997, the results are also pro forma as
if the Avtech and Dettmers acquisitions, and the Audio International acquisition
(which occured on November 14, 1997), were consummated on January 1, 1997. For
the six months ended June 30, 1998, the results are pro forma as if the Avtech
and

7
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 4--ACQUISITIONS (CONTINUED)
Dettmers acquisitions were consummated on January 1, 1997. Amounts are in
thousands, except per share data.

<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1997 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
Revenues..................................................................... $ 160,054 $ 81,846 $ 79,590
Income before extraordinary item............................................. 5,279 4,356 2,877
Income applicable to common stockholders, before extraordinary item.......... 5,279 4,356 2,877
Pro forma income per common share, before extraordinary item
Basic...................................................................... $ .70 $ .58 $ .38
Diluted.................................................................... .68 .56 .37
Pro forma weighted average number of common shares outstanding
Basic...................................................................... 7,510 7,525 7,509
Diluted.................................................................... 7,812 7,836 7,782
</TABLE>

The above information reflects adjustments for depreciation, amortization,
general and administrative expenses and interest expense based on the new cost
basis and debt structure of the Company. In 1997, income excludes the effect of
a $2,078,000 extraordinary loss incurred in connection with the Company's debt
refinancing.

NOTE 5--INVENTORIES

Inventories are comprised of the following (amounts in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1997
JUNE 30, ------------
1998
------------
(UNAUDITED)
<S> <C> <C>
Raw material............................ $21,440 $14,224
Work-in process......................... 5,072 4,655
Finished goods.......................... 8,597 7,097
------------ ------------
Total inventories................... $35,109 $25,976
------------ ------------
------------ ------------
</TABLE>

NOTE 6--LONG-TERM OBLIGATIONS; SENIOR CREDIT FACILITY

In April 1998, the Company used the net proceeds from the Follow-On Equity
Offering to partially repay borrowings outstanding under the Senior Credit
Facility. In May 1998, the Senior Credit Facility was amended to provide for a
$105 million revolving line of credit. The revolving line of credit is subject
to automatic reductions of up to $45 million upon the incurrence of additional
indebtedness permitted under the loan plus $500,000 per month from October 31,
1998 through May 31, 1999 and $1 million per month thereafter. The maximum
interest rate margins were increased 0.25% to 1.00% above the prime rate or
2.25% above the IBOR rate and the maximum commitment fee was increased to 0.425%
on the unused portion of the Senior Credit Facility. In June 1998, the Company
borrowed funds under the Senior Credit Facility to finance the Avtech and
Dettmers acquisitions.

8
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 7--INCOME TAXES

During the three months and six months ended June 30, 1998, the Company
reduced its deferred tax asset valuation allowance by $68,000 and $115,000,
respectively, to reflect the book benefit of federal net operating loss
carryforwards not previously recognized. Approximately $2,205,000 of the
Company's loss carryforwards remained at June 30, 1998 for federal income tax
purposes. No benefit for the remaining loss carryforwards has been recognized in
the consolidated financial statements.

NOTE 8--COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. For the Company, comprehensive income consists of its
reported net income or loss and the change in the foreign currency translation
adjustment during a period. The Company adopted SFAS 130 for the year ending
December 31, 1998 and has reclassified earlier periods to reflect application of
the statement.

NOTE 9--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. It also requires that gains or losses resulting from changes in the
values of those derivatives be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company is
required to adopt SFAS 133 for its fiscal year beginning January 1, 2000.
Management believes the adoption of SFAS 133 will not have a material impact on
the Company's consolidated financial position or results of operations.

NOTE 10--DEFINITIVE MERGER AGREEMENT; TENDER OFFER

On July 17, 1998, the Company announced that it had signed a definitive
merger agreement (the "Merger Agreement") with an affiliate of DLJ Merchant
Banking Partners II, which contemplates a cash tender offer by the affiliate for
all of the shares of common stock of the Company at $23.00 per share. As a
result of the pending tender offer, the Company terminated a debt offering and
recorded a $600,000 pre-tax charge as of June 30, 1998 for the estimated costs
incurred.

On July 21, 1998, TAAM Associates, Inc. commenced an action in Delaware
Chancery Court on behalf of a purported class of stockholders of the Company
against the Company, its directors, Donaldson, Lufkin & Jenrette, Inc. and
certain of its affiliates, alleging, among other things, that the directors had
breached their fiduciary duties by entering into the Merger Agreement without
engaging in an auction or "active market check" and, therefore, did not
adequately inform themselves in agreeing to terms that are unfair and inadequate
from the standpoint of the Company's stockholders. On July 24, 1998, the
plaintiffs amended the complaint by repeating the allegations in the initial
complaint and adding allegations that: (i) the Company's
Solicitation/Recommendation Statement of Schedule 14D-9 (the "14D-9") contained
material misstatements or omissions including: (a) inadequate disclosure of any
future equity participation by management after the transaction is consummated;
(b) no disclosure of any efforts to shop the Company; (c) incomplete financial
information and projections; and (d) incomplete disclosure of the basis

9
<PAGE>
DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 10--DEFINITIVE MERGER AGREEMENT; TENDER OFFER (CONTINUED)
for the fairness opinion delivered by the Company's financial advisor; (ii) the
termination fees are unreasonable; and (iii) the directors who approved the
Merger Agreement had conflicts of interest. The complaint seeks a preliminary
and permanent injunction barring defendants from proceeding with the transaction
or, if the transaction is consummated, an order rescinding it or awarding
damages, together with interest, and an award of attorneys' fees and litigation
expenses. The Company believes the action is without merit.

The Company expects to incur various expenses estimated to range between
$1.5 million and $2.0 million (pre-tax) if the tender offer and acquisition are
consummated. Under certain circumstances, the Company may incur an additional
$6.9 million (pre-tax) of fees if the Company terminates the tender offer and
proposed acquisition. While the exact timing, nature and amount of these
expenses are subject to change, the Company anticipates a one-time pre-tax
charge will be recorded in the quarter in which the tender offer is either
consummated or terminated, possibly resulting in a net loss for such quarter.

NOTE 11--LITIGATION

On August 5, 1998, the Company and its chief executive officer were served
in an action filed in state court in California by the Company's chief financial
officer and secretary claiming that he is due additional compensation in the
form of stock options, and claiming fraud, negligent misrepresentation and
breach of contract in connection therewith. The action seeks not less than $1.5
million plus punitive damages and costs. The action is in the early stages of
development and discovery has not yet been conducted; the Company intends to
vigorously defend against the claim.

10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

REVENUES. Revenues increased $1.7 million, or 6.1%, to $29.8 million for
the three months ended June 30, 1998 from $28.1 million for the three months
ended June 30, 1997. Revenues increased primarily due to the inclusion of $4.3
million of revenues from Audio International, Inc. which was acquired on
November 14, 1997. This sales increase was somewhat offset by the sales decrease
to Boeing of $0.7 million, which management believes is related primarily to
Boeing's production problems, and the sales decrease of $0.8 million to
Matsushita.

GROSS PROFIT. Gross profit increased $2.5 million, or 34.7%, to $9.7
million for the three months ended June 30, 1998 from $7.2 million for the three
months ended June 30, 1997. Gross profit as a percentage of revenues increased
to 32.6% for the three months ended June 30, 1998 from 25.6% for the three
months ended June 30, 1997. This increase was attributable to an improvement in
gross profit as a percentage of revenues from increased sales of higher margin
product and lower material costs, as well as $0.8 million realized on the bulk
sale of certain inventory items.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $1.5 million, or 38.1%, to $5.3
million for the three months ended June 30, 1998 from $3.8 million for the three
months ended June 30, 1997. SG&A expenses as a percentage of revenues increased
to 17.8% for the three months ended June 30, 1998 from 13.6% for the three
months ended June 30, 1997. SG&A expenses increased primarily due to the
inclusion of SG&A expenses from Audio International, Inc. which was acquired on
November 14, 1997.

INTEREST EXPENSE. Interest expense decreased $0.3 million, or 44.7%, to
$0.4 million for the three months ended June 30, 1998 from $0.7 million for the
three months ended June 30, 1997. The decrease resulted from the repayment of a
substantial portion of the Company's debt with the net proceeds from the
Follow-On Equity Offering in April 1998.

OTHER EXPENSE, NET. Other expenses, not including interest, increased $0.4
million to $0.6 million for the three months ended June 30, 1998. The primary
reason for the increase was the inclusion of costs associated with the
terminated debt offering.

PROVISION FOR INCOME TAXES. During the three months ended June 30, 1998,
the Company increased its provision for income taxes by $0.5 million primarily
due to higher income before taxes, net of a reduction in its deferred tax
valuation allowance of $0.1 million to reflect the book benefit of federal net
operating loss carryforwards not previously recognized. Approximately $2.2
million of the net operating loss carryforwards are available at June 30, 1998
for federal income tax purposes.

EXTRAORDINARY LOSS FROM DEBT REFINANCING. During the three months ended
June 30, 1998, the Company did not have any extraordinary charges. During the
three months ended June 30, 1997, the Company incurred a $2.1 million
extraordinary charge, net of an estimated $1.4 million income tax benefit, as a
result of refinancing the Company's debt with the net proceeds from its initial
public offering. The extraordinary charge is comprised of: (i) a $1.9 million
write-off of deferred financing costs; (ii) a $1.2 million write-off of
unamortized original issued discounts; (iii) a $0.3 million charge for a
prepayment penalty and expenses; and (iv) a $0.1 million write-off of the
unamortized portion of an interest rate cap agreement.

NET INCOME (LOSS). Net income increased $2.3 million to $1.7 million for
the three months ended June 30, 1998 from a net loss of $0.6 million for the
three months ended June 30, 1997. The increase is a result of the factors
described above.

11
<PAGE>
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS. Net income applicable
to common stockholders increased $4.6 million to $1.7 million for the three
months ended June 30, 1998 from a net loss applicable to common stockholders of
$2.9 million for the three months ended June 30, 1997. The increase resulted
from the factors described above, as well as the absence of the $2.2 million
increase in the redemption value of mandatorily redeemable common stock warrants
during the three months ended June 30, 1997.

PRO FORMA INCOME, AS ADJUSTED. Pro forma income, as adjusted before
extraordinary item, increased $0.1 million to $1.7 million for the three months
ended June 30, 1998 from $1.6 million for the three months ended June 30, 1997
as a result of the factors described above. Pro forma income, as adjusted,
reflects the Recapitalization and the IPO and the application of the net
proceeds therefrom, as if each had occurred as of January 1, 1997 (Note 3). The
pro forma results exclude an extraordinary charge incurred in April 1997 as a
result of the repayment of debt with the net offering proceeds.

BOOKINGS AND BACKLOG. Bookings increased $4.8 million, or 14.9%, to $33.1
million for the three months ended June 30, 1998 compared to $28.3 million for
the same period in 1997. The increase in bookings for 1998 includes $4.4 million
attributable to Audio International, Inc., which was acquired in November 1997.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

REVENUES. Revenues increased $4.7 million, or 8.7%, to $59.0 million for
the six months ended June 30, 1998 from $54.3 million for the six months ended
June 30, 1997. Revenues increased primarily due to the inclusion of $9.0 million
of revenues from Audio International, Inc. which was acquired on November 14,
1997. This revenue increase was partially offset by a decrease in sales to
Boeing of $2.6 million, which management believes was primarily related to
Boeing's production difficulties, and a decrease in sales to Matsushita of $2.2
million.

GROSS PROFIT. Gross profit increased $5.5 million, or 41.5%, to $18.7
million for the six months ended June 30, 1998 from $13.2 million for the six
months ended June 30, 1997. Gross profit as a percentage of revenues increased
to 31.7% for the six months ended June 30, 1998 from 24.4% for the six months
ended June 30, 1997. The increase in gross profit was attributable to increased
sales of higher margin products and lower material costs, as well as $0.8
million realized on the bulk sale of certain inventory items.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $3.0 million, or 41.0%, to $10.2
million for the six months ended June 30, 1998 from $7.2 million for the six
months ended June 30, 1997. SG&A expenses as a percentage of revenues increased
to 17.3% for the six months ended June 30, 1998 from 13.3% for the six months
ended June 30, 1997. SG&A expenses increased primarily due to the inclusion of
SG&A expenses from Audio International, Inc. which was acquired on November 14,
1997.

OPERATING INCOME. Operating income increased $2.2 million to $7.8 million
for the six months ended June 30, 1998 from $5.6 million for the six months
ended June 30, 1997. Operating income as a percentage of revenues increased to
13.2% for the six months ended June 30, 1998 from 10.3% for the six months ended
June 30, 1997. The increase in operating income resulted from the factors
described above.

INTEREST EXPENSE. Interest expense decreased $1.1 million, or 48.8%, to
$1.2 million for the six months ended June 30, 1998 from $2.3 million for the
six months ended June 30, 1997. The decrease resulted from the repayment of a
substantial portion of the Company's debt with the net proceeds from the
Follow-On Equity Offering in April 1998.

OTHER EXPENSE, NET. Other expense, not including interest expense,
increased $0.5 million to $0.6 million during the six months ended June 30,
1998. The primary reason for the increase was the inclusion of costs associated
with the terminated debt offering.

12
<PAGE>
PROVISION FOR INCOME TAXES. During the six months ended June 30, 1998, the
Company increased its provision for income taxes by $1.5 million primarily due
to higher income before taxes, net of a reduction in its deferred tax valuation
allowance of $0.1 million to reflect the book benefit of federal net operating
loss carryforwards not previously recognized. Approximately $2.2 million of the
net operating loss carryforwards are available at June 30, 1998 for federal
income tax purposes.

EXTRAORDINARY LOSS FROM DEBT REFINANCING. During the six months ended June
30, 1998, the Company did not have any extraordinary charges. During the six
months ended June 30, 1997, the Company incurred a $2.1 million extraordinary
charge, net of an estimated $1.4 million income tax benefit, as a result of
refinancing the Company's debt with the proceeds from its initial public
offering.

NET INCOME. Net income increased $3.4 million to $3.4 million for the six
months ended June 30, 1998 from a nominal net income for the six months ended
June 30, 1997. The increase is a result of the factors described above.

NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS. Net income applicable
to common stockholders increased $6.0 million to $3.4 million for the six months
ended June 30, 1998 from a net loss applicable to common stockholders of $2.6
million for the six months ended June 30, 1997. The increase resulted from the
factors described above, as well as the absence of the $2.2 million increase in
the redemption value of mandatorily redeemable common stock warrants during the
six months ended June 30, 1997.

PRO FORMA INCOME, AS ADJUSTED. Pro forma income, as adjusted before
extraordinary item, increased $0.4 million to $3.4 million for the six months
ended June 30, 1998 from $3.0 million for the six months ended June 30, 1997 as
a result of the factors described above. Pro forma income, as adjusted, reflects
the Recapitalization and the IPO and the application of the net proceeds
therefrom, as if each had occurred as of January 1, 1997 (Note 3). The pro forma
results exclude an extraordinary charge incurred in April 1997 as a result of
the repayment of debt with the net offering proceeds.

BOOKINGS AND BACKLOG. Bookings increased $6.1 million, or 11.0%, to $61.8
million for the six months ended June 30, 1998 compared to $55.7 million for the
same period in 1997. The increase in bookings for 1998 includes $9.4 million
attributable to Audio International Inc., which was acquired in November 1997.
As of June 30, 1998, the Company had a sales order backlog of $84.5 million
which includes $31.4 million from Avtech Corporation, compared to $49.0 million
as of December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 30, 1998, the Company used cash for operating
activities of $0.8 million. The Company used $5.8 million in cash for working
capital. The Company's accounts receivable consist of trade receivables and
unbilled receivables, which are recognized pursuant to the percentage of
completion method of accounting for long-term contracts. Accounts receivable
increased $2.2 million for the six months ended June 30, 1998 due to higher
sales. Inventories increased by $3.1 million for the six months ended June 30,
1998, primarily in anticipation of higher sales during the remainder of 1998.
Accounts payable decreased by $1.5 million for the six months ended June 30,
1998, primarily as a result of a change to a new gold supplier that offered
substantial discounts for prompter payment.

Net cash used in investing activities was $86.7 million during the six
months ended June 30, 1998. Of this amount, $83.6 was used for the Avtech
acquisition and $2.1 million for the Dettmers acquisition (both net of cash
acquired). The total purchase price for the Dettmers acquisition included
additional contingent consideration with a maximum of $2.0 million payable
between 1999 and 2002.

Capital expenditures of $1.1 million were made during the six months ended
June 30, 1998. The Company anticipates total capital expenditures of
approximately $4.5 million in 1998.

Net cash provided by financing activities was $89.6 million for the six
months ended June 30, 1998. On April 1, 1998, the Company completed the
Follow-On Equity Offering and sold 2,206,117 shares of

13
<PAGE>
common stock for $17.00 per share. Net proceeds from the Follow-On Equity
Offering totaled $34.8 million. The Company also increased its borrowings under
its revolving line of credit by $85.7 million for the six months ended June 30,
1998 to finance the acquisitions of Avtech Corporation and Dettmers Industries
Inc. on June 26, 1998 and June 30, 1998, respectively.

Cash increased $2.1 million for the six months ended June 30, 1998 due to
the factors described above. In May 1998, the Company amended its existing
Credit Facility, which expires in 2002, to further increase the revolving line
to $105.0 million. The amendment was subject to the fulfillment of certain
conditions, including the consummation of the Avtech acquisition, with mandatory
reductions of up to $45.0 million from the proceeds of certain indebtedness, and
automatic reductions on the last day of each month in the monthly amount of $0.5
million from October 31, 1998 through May 31, 1999 and $1.0 million thereafter
(See Note 6 to the consolidated financial statements). Availability under the
Credit Facility was $12.2 million and working capital aggregated $46.7 million
as of June 30, 1998. The Company believes that the current levels of working
capital and amounts available under the Credit Facility will enable it to meet
its foreseeable short-term and long-term liquidity requirements.

ANTICIPATED CHARGE FOR DEFINITIVE MERGER AGREEMENT AND TENDER OFFER FEES AND
EXPENSES

The Company expects to incur various expenses estimated to range between
$1.5 million and $2.0 million (pre-tax) if the tender offer and acquisition are
consummated (See Note 10 to the consolidated financial statements). Under
certain circumstances, the Company may incur an additional $6.9 million
(pre-tax) of fees if the Company terminates the tender offer and proposed
acquisition. While the exact timing, nature and amount of these expenses are
subject to change, the Company anticipates a one-time pre-tax charge will be
recorded in the quarter in which the tender offer is either consummated or
terminated, possibly resulting in a net loss for such quarter. The Company
believes the fees and expenses will not have a significant adverse effect on its
liquidity or working capital.

FORWARD-LOOKING STATEMENTS

Management's discussion and analysis of financial condition and results of
operations that are not historical facts are forward-looking statements. Such
forward-looking statements in this document are made pursuant to the safe harbor
provisions of the Securities Act of 1933 and the Securities Exchange Act of
1934. Forward-looking statements involve a number of risks and uncertainties.
For a discussion of certain risks and uncertainties that may affect the actual
results of any forward-looking information contained herein, refer to the
section entitled "Risk Factors" included in Item 1, "Description of Business,"
in the Company's Form 10-K for the year ended December 31, 1997.

14
<PAGE>
PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 5, 1998, the Company and R. Jack DeCrane, its Chief Executive
Officer, were served in an action filed in state court in California by Robert
A. Rankin claiming that he is due additional compensation in the form of stock
options, and claiming fraud, negligent misrepresentation and breach of contract
in connection therewith. The action seeks not less than $1.5 million plus
punitive damages and costs. The action is in the early stages of development and
discovery has not yet been conducted; the Company intends to vigorously defend
against the claim. Mr. Rankin has been placed on administrative leave with pay.
The Company's board of directors has appointed John R. Hinson, the Company's
Vice President of Planning & Business Development, as the interim Chief
Financial Officer and acting Secretary of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 17, 1998 the Company held its annual meeting of stockholders. R. G.
MacDonald and Mitchell I. Quain, incumbent members of the board of directors,
were re-elected as Class I directors for a term of three years (or until their
respective successors are duly elected and qualified). The terms of office of
each of the remaining directors, James R. Bergman, Paul H. Cascio, R. Jack
DeCrane and Jonathan A. Sweemer, continued after the meeting. A total of
5,422,672 shares were voted at the meeting, in person or by proxy, as follows:

<TABLE>
<CAPTION>
ELECTION OF MR. MACDONALD ELECTION OF MR. QUAIN
- ----------------------------------- -----------------------------------
<S> <C> <C> <C>
For 5,412,572 For 5,422,472
Withhold 10,100 Withhold 200
---------- ----------
Total 5,422,672 Total 5,422,672
---------- ----------
---------- ----------
</TABLE>

No other business was submitted to the stockholders for a vote at the annual
meeting.

ITEM 5. OTHER INFORMATION

DEFINITIVE MERGER AGREEMENT; TENDER OFFER

15
<PAGE>
(i) the Company's Solicitation/Recommendation Statement of Schedule 14D-9 (the
"14D-9") contained material misstatements or omissions including: (a) inadequate
disclosure of any future equity participation by management after the
transaction is consummated; (b) no disclosure of any efforts to shop the
Company; (c) incomplete financial information and projections; and (d)
incomplete disclosure of the basis for the fairness opinion delivered by the
Company's financial advisor; (ii) the termination fees are unreasonable; and
(iii) the directors who approved the Merger Agreement had conflicts of interest.
The complaint seeks a preliminary and permanent injunction barring defendants
from proceeding with the transaction or, if the transaction is consummated, an
order rescinding it or awarding damages, together with interest, and an award of
attorneys' fees and litigation expenses. The Company believes the action is
without merit.

The Company expects to incur various expenses estimated to range between
$1.5 million and $2.0 million (pre-tax) in connection with the tender offer.
Under certain circumstances, the Company may incur an additional $6.9 million
(pre-tax) of fees if the Company terminates the tender offer and proposed
acquisition. While the exact timing, nature and amount of these expenses are
subject to change, the Company anticipates a one-time pre-tax charge will be
recorded in the quarter in which the tender offer is either consummated or
terminated, possibly resulting in a net loss for such quarter.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

<TABLE>
<S> <C>
20.1 Final Prospectus of the Company dated April 2, 1998 (incorporated by reference
to the Company's Form 10-Q filed May 14 1998, Registration No. 333-47457) *

27 Financial Data Schedule **

99.7 Solicitation/Recommendation Statement dated July 22, 1998 (incorporated by
reference to the Company's Schedule 14D-9 filed July 22, 1998) *
</TABLE>

- ------------------------

* Previously filed

** Filed herewith

b. Reports on Form 8-K

On June 5, 1998, the Company filed a Form 8-K Current Report with respect to
the signing of a definitive agreement to acquire Avtech Corporation.

On July 10, 1998, the Company filed a Form 8-K Current Report with respect
to its consummation of the acquisitions of Avtech Corporation and Dettmers
Industries, Inc.

On July 21, 1998, the Company filed a Form 8-K Current Report with respect
to the Company signing a definitive merger agreement with an affiliate of
DLJ Merchant Banking Partners II, which contemplates a cash tender offer by
the affiliate for all of the shares of common stock of the Company at $23.00
per share.

16
<PAGE>
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.

<TABLE>
<S> <C> <C>
DECRANE AIRCRAFT HOLDINGS, INC.
(Registrant)

August 11, 1998 By: /s/ JOHN R. HINSON
-----------------------------------------
Name: John R. Hinson
Title: INTERIM CHIEF FINANCIAL OFFICER AND
ACTING SECRETARY
</TABLE>

<PAGE>
Exhibit 9

IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE

IN AND FOR NEW CASTLE COUNTY

- -----------------------------------------x
TAAM Associates, Inc. :
Plaintiff, :
v. :
R. JACK DeCRANE, R.G. MACDONALD, :
CHARLES H. BECKER, ROBERT A. RANKIN, : C.A. NO. 16551-NC
ROGER L. KELLER, JAMES R. BERMAN, :
PAUL H. CASCIO, MITCHELL I. QUAIN, :
JONATHAN A. SWEEMER, DeCRANE :
AIRCRAFT HOLDINGS, INC., DONALDSON :
LUFKIN JENRETTE INC. AND DeCRANE :
ACQUISITION CO. :
Defendants. :
- -----------------------------------------x

AMENDED CLASS ACTION COMPLAINT

Plaintiff alleges upon information and belief, except for paragraph 1 hereof,
which is alleged upon knowledge, as follows:

1. Plaintiff has been the owner of the common stock of DeCrane Aircraft
Holdings, Inc. ("DeCrane Aircraft" or the "Company") since prior to the
transaction herein complained of and continuously to date.

2. Defendant DeCrane Aircraft is a corporation duly organized and existing
under the laws of the State of Delaware. The Company is a leader in the
manufacturing and integration of avionics components primarily for the
commercial aircraft market, with the balance for the corporate, military and
regional airplane sectors.

<PAGE>

3. Defendant Donaldson, Lufkin & Jenrette ("DLJ") is a Delaware
corporation based in New York, New York and is a leading integrated investment
and merchant bank servicing institutional corporate, governmental individual
clients.

4. Defendant DeCrane Acquisition Co. ("DeCrane Acquisition") is a Delaware
corporation and is owned or controlled by defendant DLJ and/or its affiliates.

5. Defendant R. Jack DeCrane, the founder of the Company, is Chairman of
the Company's Board of Directors.

6. Defendant R.G. MacDonald is Vice Chairman of t he Company's Board of
Directors and was President of the Company from April 1993 to December 1996.

7. Defendant Charles H. Becker is President, Chief Operating Officer and
Director of the Company.

8. Defendant Robert A. Rankin is Chief Financial Officer and a Director of
the Company.

9. Defendant Roger L. Keller is Group Vice President of Systems and a
Director of the Company.

10. Defendant James R. Bergman, is one of the founders and a Director of
the Company and is the nominee of DSV Partners IV, which owns 6.5% of the
Company's outstanding stock.

11. Defendant Paul H. Cascio is a Director of the Company and is general
partner of Brantley Venture Partners II, L.P., which owns or controls 6.5% of
the Company's outstanding common stock.

12. Defendant Jonathan A. Sweemer is the nominee of Nassau Capital Partners,
L.P., which owns or controls 11.6% of the Company's outstanding common stock.

2
<PAGE>

13. Defendant Mitchell I. Quain is a Director of the Company.

14. The Individual Defendants, who collectively own approximately 22.5% of
the Company's outstanding common stock, are in a fiduciary relationship with
Plaintiff and the other public stockholders of DeCrane Aircraft and owe them the
highest obligations of good faith and fair dealing.

CLASS ACTION ALLEGATIONS

15. Plaintiff brings this action on its own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
common stockholders of the Company (except the defendants herein and any person,
firm, trust, corporation, or other entity related to or affiliated with any of
the defendants) and their successors in interest, who are or will be threatened
with injury arising from defendants' actions as more fully described herein.

16. This action is properly maintainable as a class action because:

(a) The class is so numerous that joinder of all members is impracticable.
As of May 11, 1998, there were approximately 1,524,740 shares of DeCrane
Aircraft common stock outstanding owned by hundreds, if not thousands, or record
and beneficial, holders,

(b) There are questions of law and fact which are common to the class
including, inter alia, the following: (i) whether defendants have breached their
fiduciary and other common law duties owed by them to plaintiff and the members
of the class; and (ii) whether the class is entitled to injunctive relief or
damages as a result of the wrongful conduct committed by defendants.

(c) Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiff are

3
<PAGE>

typical of the claims of other members of the class and plaintiff has the same
interest as the other members of the class. Plaintiff will fairly and adequately
represent the class.

(d) Defendants have acted in a manner which affects plaintiff and all
members of the class alike, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the class of a whole.

(e) The prosecution of separate actions by individual members of the Class
would create a risk of inconsistent or varying adjudications with respect to
individual members of the Class, which would establish incompatible standards of
conduct for defendants, or adjudications with respect to individual members of
the Class which would, as a practical matter, be dispositive of the interests of
other members or substantially impair or impede their ability to protect their
interests.

SUBSTANTIVE ALLEGATIONS
BACKGROUND

17. DeCrane Aircraft's recent operating results have been exceptional. In
a press release dated March 3,1998 announcing its results for the fourth quarter
and year ended December 31, 1997, the Company reported that fourth quarter
revenue increased 27.1% and pro forma earnings per share had increased 57.9%
over the same period in the prior year. For the year, the Company reported that
revenues advanced 67.3% and pro forma earnings per share rose 120%. The Company
has continued to produce strong revenue and earnings growth this year. For the
first quarter ending March 31, 1998, the Company reported that revenues advanced
11.5% to $29.1 million from $26.1 million for the first quarter of 1997. Gross
profit improved 49.5% to $9 million from $6 million over the first quarter in
the prior year, while the Company's gross margins continued to improve to 30.9%
percent from 23% in the prior period. Significantly, the Company's

4
<PAGE>

net income for the first quarter of 1998 increased 168.4% to $1.7 million from
$0.6 million in the same period in the prior year. Defendant DeCrane commented
that "our acquisition strategy together with our overall business approach of
carefully focusing on product and service niches we can dominate is working. We
remain on course to deliver strong results for the balance of the year."

18. Despite these spectacular results, DeCrane Aircraft's stock price
has languished. Given the Company's strong financial performance, its
prospects for future growth and expansion are substantial, and the intrinsic
value of DeCrane Aircraft is far greater then that reflected in the market
price of DeCrane Aircraft's stock.

DLJ Acts to Acquire DeCrane Aircraft

19. On July 17, 1998, defendants DeCrane Aircraft and DLJ announced that
DeCrane Aircraft and an affiliate of DLJ Merchant Banking Partners II, DeCrane
Acquisition Co., a Delaware corporation ("DeCrane Acquisition"), had entered
into a definitive merger agreement pursuant to which DeCrane Acquisition will
acquire DeCrane Aircraft in a transaction valued at approximately $173 million.
DLJ Merchant Banking Partners II, is controlled by defendant DLJ.

20. On or about July 22, 1998, DeCrane Acquisition commenced a cash tender
offer for all of the Company's outstanding common shares at $23 per share by
filing an Offer to Purchase on Schedule 14D-1 (the "14D-1) with the United
States Securities and Exchange Commission ("SEC"). On the same day, the
Individual Defendants caused DeCrane Aircraft to file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "14D-9"). The two
filings purported to describe, inter alia, the merger transaction, the history
of the negotiations between the companies, the opinion of DeCrane Aircraft's
financial advisor and

5
<PAGE>

certain other purportedly relevant information. The 14D-9 was apparently mailed
to DeCrane Aircraft shareholders shortly after dissemination of the 14D-1.

The 14D-9 Fails to Disclose Material Information

A. The Equity Participation Of Management
Following The Tender Offer is Not Disclosed

21. The 14D-9 fails to disclose material information necessary for DeCrane
Aircraft shareholders to make an informed decision. For example, buried within
the 14D-1 is the statement "It is DLJMB's [DLJ Merchant Banking Partners II,
L.P.] intention to afford certain key members of the Company's management the
opportunity to purchase an equity participation in Parent [DeCrane Holdings
Co]," which is owned and controlled by DLJ and its affiliates. The 14D-1 also
states "No agreement has been entered into between DLJMB, Parent or Purchaser,
on the one hand, and management of the Company, on the other, regarding such
equity participation, and no discussions or negotiations regarding such equity
participation are currently anticipated to occur during the pendency of the
Offer." The 14D-9, however, is completely silent with respect to the proposed
"equity participation" of senior management in the successor company once
DeCrane Aircraft's public shareholders have been eliminated. The 14D-9 fails to
disclose the identities of the "certain key members of the Company's management"
who will be granted the right to equity participation in the successor company,
and whether any of these "key members" are also directors upon whose
recommendation to accept the tender offer stockholders are being asked to rely.
Presumably, there were discussions between defendant DLJ and senior management
prior to the execution of the merger agreement regarding the equity
participation of senior management in the successor company. However, the 14D-9
fails to disclose what the substance of these discussions was and when and on
what terms senior management will be

6
<PAGE>

permitted to reassert their ownership interests in the Company. Absent this
information, DeCrane Aircraft's public shareholders are unable to make an
informed decision about the fairness and adequacy of the proposed buy-out at $23
per share.

B. The Failure To Shop The Company

22. The 14D-9 fails to disclose the efforts, if any, of the DeCrane Aircraft
Board to comply with their fiduciary duties to solicit indications of interest
or competing bids from third parties in this change-of-control transaction. On
July 15, 1998, a mere two days before the merger agreement was executed, the
Board of Directors "broadened the scope of the authority of the Special
Committee to consider acquisition proposals and strategic alternatives in
addition to a business combination with DLJ. However, it is not disclosed
whether this expanded mandate authorized the Special Committee or its financial
advisor to actively solicit, and not merely "consider", competing bids for the
Company and if it did, what the results of these efforts were. Additionally, if
the Special Committee and/or its financial advisor were not authorized to
solicit competing bids, the 14D-9 fails to provide any explanation or rationale
for this apparent failure to explore other strategic alternatives.

23. Additionally, the 14D-9 discloses that, after defendants announced the
proposed acquisition, the Company received an indication of interest from
another potential acquiror. However, no information is provided concerning the
terms of this alternative acquisition, who made the proposal, or the extent to
which it was pursued. Considering the apparent failure of the Board to actively
pursue strategic alternatives, such an omission as inexcusable.

7
<PAGE>

24. Attached to the 14D-9 is a letter dated July 21, 1998, from Warburg
Dillon Reed ("Warburg"), the Special Committee's financial advisor, to the
Company's Board of Directors (the "fairness opinion") opining that the proposed
transaction is fair to DeCrane Aircraft's public shareholders from a financial
point of view. The fairness opinion states "You have not asked us to solicit or
otherwise evaluate any other offers that may be available to the Company."

25. Given the lack of information provided concerning the potential value
to be received in competing bids, investors are unable to consider the proposed
acquisition on an informed basis because they have no way of knowing if the
proposed acquisition price is low in relation to what DeCrane Aircraft could
receive in an open market auction or, at the very least, by soliciting other
bids. Defendants fail to disclose the Company's purported rationale in directing
its financial advisor not to conduct a formal auction and not to solicit
competing bids for DeCrane Aircraft.

C. The Absence of Current Financial
Information or Detailed Projections

26. The 14D-1 contains historical information concerning the Company only
through the three months ended March 31, 1997. The failure to provide more
recent financial information on which the Company's shareholders can base a
decision whether to tender or not is inexcusable. DeCrane Aircraft shareholders
are being asked to make an irrevocable decision regarding their investment in
DeCrane Aircraft on the basis of incomplete information and the 14D-9, by
omitting any financial information concerning the Company, fails to cure this
omission.

8
<PAGE>

27. The 14D-1 discloses that DeCrane Aircraft provided defendant DLJ and
its representatives with financial projections. The 14D- 1, however, merely
provides a bare-bones summary of these projections. Moreover, this omission is
not cured by the 14D-9 which contains no information at all regarding the
Company's projections and prospects, despite the fact that these projections
were provided to DLJ and its affiliates. This information is vital to the
ability of DeCrane Aircraft's public shareholders to evaluate the $23 per share
buyout price properly.

D. The Incomplete Description Of the
Banker's Financial Analyses

28. The fairness opinion recites a litany of various documents relied on by
Warburg in rendering the fairness opinion, including "certain internal financial
information and other data relating to the business and prospects of the
Company, including financial estimates, that were provided to us by the Company
and are not publicly available, [and] certain internal financial information and
other data relating to the business, including financial estimates that were
provided to us by the management of the Company and are not publicly available."
Yet none of this information is provided to shareholders or accounted for in the
fairness opinion.

29. Neither the 14D-9 nor the fairness opinion contains a discussion of the
various financial analysis presumably performed by Warburg. The 14D-9 and the
fairness opinion are silent with respect to what valuation methodologies were
employed by Warburg in rendering its fairness opinion so that shareholders
cannot determine whether there was any deviation from standard investment
banking practices. Accordingly, DeCrane Aircraft shareholders cannot determine
from these materials what the intrinsic value of the shares is and why the
proposed acquisition by DLJ is preferable to other alternatives or is fair.

9
<PAGE>

The Termination Fee Provisions Are Coercive

30. In order to assure success for the DLJ acquisition and thereby trigger
the acceleration of options described below which confers windfall profits on
certain of the Individual Defendants, the Individual Defendants have agreed to
termination provisions that would render it prohibitively expensive for anyone
else to acquire the Company.

31. According to the 14D-1, the merger agreement provides that i: DeCrane
Aircraft terminates the merger agreement, and/or accepts a superior acquisition
proposal from a third party within one year, then the Company shall pay to DLJ a
termination fee of $6.9 million. The Company must also reimburse DLJ for the
expenses it incurs, up to $4.25 million. Accordingly, the Company is obligated
to pay u to $11.15 million in termination fees and expenses, representing
approximately 6.5% of the total acquisition price, if a superior proposal is
accepted.

32. As structured, the termination fee provisions, representing 6.5%o f the
acquisition price, impose unreasonably severe financial costs on a competing
bidder for control of DeCrane Aircraft thus discouraging and penalizing any
buy-out proposal which would enhance or maximize shareholder value, including
the competing proposal the Company received since announcing the proposed
acquisition by DLJ.

The Individual Defendants Have Substantial Conflicts With The Class

33. The merger agreement creates disabling conflicts of interest by
conferring extraordinary benefits on certain of the Individual Defendants.
Pursuant to the merger agreement, all stock options, whether or not then vested
or exercisable, will be cancelled and the holder thereof will be entitled to a
lump sum cash payment equal to the excess of $23.00 per

10
<PAGE>

share over the exercise price of the option multiplied by the number of shares
available to be purchased under the options. Accordingly, defendants DeCrane,
MacDonald, Becker, Rankin and Keller will receive $3,958,967, $1,364,244,
$1,100,064, $1,101,683 and $989,332, respectively, if the proposed merger is
completed.

34. The Special Committee was comprised of defendants Bergman, Cascio and
Quain. Defendants Bergman and Cascio are the nominees of the venture capital
funds DSV Partners IV ("DSV") and Brantley Venture Partners II, L.P.
("Brantley"). Defendants Berman and Cascio are also the general partners of
these venture capital limited partnership interests, which obtained their shares
of DeCrane Aircraft prior to and at prices substantially below the $12 per share
price in the Company's initial public offering in April 1997. Accordingly,
defendants Bergman and Cascio have substantial conflicts of interest with the
public shareholders of DeCrane Aircraft. As general partners of DSV and
Brantley, defendants Bergman and Cascio are obligated to achieve an acceptable
rate of return for those limited partnerships and to liquidate that investment
once the rate of return is realized, an objective which can be realized through
the acquisition by DLJ. The obligations of defendants Bergman and Cascio to DSV
and Brantley and their investors may conflict with their fiduciary obligations
as directors of DeCrane Aircraft to enhance and protect the interest of the
Company's public shareholders.

Defendants Have Failed To Maximize Shareholder Value

35. By entering into the agreement with DLJ, the DeCrane Aircraft Board has
initiated a process to sell the Company which imposes heightened fiduciary
responsibilities and requires enhanced scrutiny by the Court. However, the terms
of the proposed transaction were not the result of an auction process or active
market check; they were arrived at without a full

11
<PAGE>

and thorough investigation by the Individual Defendants; and they are
intrinsically unfair and inadequate from the standpoint of the DeCrane Aircraft
shareholders.

36. The Individual Defendants failed to make an informed decision, as no
market check of the Company's value was obtained. In agreeing to the merger, the
Individual Defendants failed to properly inform themselves of DeCrane Aircraft's
highest transactional value.

37. The Individual Defendants have violated the fiduciary duties owed to
the public shareholders of DeCrane Aircraft. The Individual Defendants'
agreement to the terms of the transaction, its timing, and the failure to
auction the Company and invite other bidders, and defendants' failure to provide
a market check demonstrate a clear absence of the exercise of due care and of
loyalty to DeCrane Aircraft's public shareholders.

38. The Individual Defendants have violated their fiduciary duties to the
public shareholders of DeCrane Aircraft and agreed to the proposed transaction
in order to maintain and enhance their own substantial positions and
perquisites. Indeed, the joint press release announcing the proposed transaction
stated: Thomspon Dean, Managing Partner of DLJ Merchant Banking Partners II,
said, "We are excited to invest in a company with such rapid growth prospects
and industry leading products. We look forward to providing management with the
capital to aggressively grow these businesses through both internal investment
and acquisitions." (emphasis added).

39. The proposed bid is a attempt by defendants to benefit themselves from
the transaction at the expense of DeCrane Aircraft's public stockholders. The
proposed plan will, for inadequate consideration, deny plaintiff and the other
members of the class their right to share proportionately in the future success
of DeCrane Aircraft and its valuable assets, while

12
<PAGE>

permitting DLJ and certain members of the Company's management to reap huge
benefits from the transaction.

40. The Individual Defendants' fiduciary obligations under these
circumstances require them to:

(a) Undertake an appropriate evaluation of DeCrane Aircraft's net worth as
merger/acquisition candidate; and

(b) Engage in a meaningful auction with third parties in an attempt to
obtain the best value for DeCrane Aircraft's public shareholders.

41. The Individual Defendants have breached their fiduciary duties by
reason of the acts and transactions complained of herein, including their
decision to be acquired by DLJ without making the requisite effort to obtain the
best offer possible.

42. Plaintiff and other members of the Class have been and will be damaged
in that they have not and will not receive their fair proportion of the value of
DeCrane Aircraft's assets and business, and will be prevented from obtaining
fair and adequate consideration for their shares of DeCrane Aircraft common
stock.

43. The consideration to be paid to class members in the proposed merger is
unfair and inadequate because, among other things:

(a) The intrinsic value of DeCrane Aircraft's common stock is materially in
excess of the amount offered for those securities in the merger giving due
consideration to the anticipated operating results, net asset value, cash flow,
and profitability of the Company;

(b) The merger price is not the result of an appropriate consideration of
the value of DeCrane Aircraft because the DeCrane Aircraft Board approved the
proposed

13
<PAGE>

merger without undertaking steps to accurately ascertain DeCrane Aircraft's
value through open bidding or at least a "market check mechanism;" and

(c) By entering into the agreement with DLJ, the Individual Defendants have
allowed the price of DeCrane Aircraft stock to be capped, thereby depriving
plaintiff and the Class of the opportunity to realize any increase in the value
of DeCrane Aircraft stock.

44. By reason of the foregoing, each member of the Class will suffer
irreparable injury and damages absent injunctive relief by this Court.

DLJ I An Aider And Abettor

45. Defendant DLJ has knowingly aided and abetted the breaches of fiduciary
duty committed by the other defendants to the detriment of DeCrane Aircraft's
public shareholders. Indeed, the proposed merger could not take place without
the active participation of DLJ. DLJ has agreed to the structure of the
transaction and to maintain and enhance the positions and compensation of the
Individual Defendants in the successor company to assure their agreement and
cooperation in and to a transaction which will not maximize value for the
Company's public shareholders. DLJ has so agreed to enable it and its affiliates
to acquire the Company at the lowest possible price. Furthermore, DLJ and its
affiliates are the intended beneficiaries of the wrongs complained of and would
be unjustly enriched absent relief in this action.;

46. Plaintiff and other members of the Class have no adequate remedy at law.

WHEREFORE, plaintiff and members of the Class demand judgment against defendants
as follows:

14
<PAGE>

A. Declaring that this action is properly maintainable as a class action
and certifying plaintiff as the representative of the Class;

B. Preliminarily and permanently enjoining defendants and their counsel,
agents, emp0loyees and all persons acting under, in concert with, or for them,
from proceeding with, consummating, or closing the proposed transaction;

C. In the event that the proposed transaction is consummated, rescinding
it and setting it aside, or awarding rescissory damages to the Class;

D. Awarding compensatory damages against defendants, individually and
severally, in an amount to be determined at trial, together with pre-judgment
and post-judgment interest at the maximum rate allowable by law, arising from
the proposed transaction;

E. Awarding plaintiff its costs and disbursements and reasonable
allowances for fees of plaintiff's counsel and experts and reimbursement of
expenses; and

F. Granting plaintiff and the Class such other and further relief as the
Court may deem just and proper.

ROSENTHAL, MONHAIT, GROSS & GODDESS,
P.A.

By: /s/
-------------------------------------
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, Delaware 19899-1070
(302) 656-4433
Attorneys for Plaintiff

OF COUNSEL:

BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York NY 1016
(212) 779-1414
July 24, 1998

<PAGE>
Exhibit 10
MEMORANDUM OF UNDERSTANDING

This MEMORANDUM OF UNDERSTANDING is entered into as of August
18, 1998 among the plaintiff ("Plaintiff") in the Action (as defined herein),
and DeCrane Aircraft Holdings, Inc. ("DeCrane"), members of DeCrane's Board of
Directors (including directors constituting the special committee ("Special
Committee")), Donaldson Lufkin Jenrette, Inc. ("DLJ") and DeCrane Acquisition
Co. ("DeCrane Acquisition") (collectively, "Defendants") by the undersigned
attorneys. Except as otherwise stated in this Memorandum of Understanding,
capitalized terms herein have the meaning given them in the Agreement and Plan
of Merger dated as of July 16, 1998 among DeCrane and DeCrane Acquisition (the
"Merger Agreement").

WHEREAS, there is now pending an action in the Court of
Chancery of the State of Delaware, styled Taam Associates, Inc.
v. DeCrane, et al., C.A. No. 16551-NC ("the Action "); and

WHEREAS, the Action was filed as a putative class action on
behalf of the public holders of DeCrane common stock, relating to the proposed
merger (the "Transaction") of DeCrane into DeCrane Acquisition, as set forth in
the Merger Agreement; and

WHEREAS, the Action names as defendants DeCrane, DLJ, DeCrane
Acquisition, and individual members of the DeCrane Board of Directors; and

WHEREAS, the Action seeks declaratory and injunctive relief,
monetary damages and/or rescission with respect to the Transaction based upon
the allegation, inter alia, that the conduct of the members of the DeCrane Board
of Directors in connection with the Transaction constitutes a breach of their
fiduciary duties, aided and abetted by DLJ; and

WHEREAS, the defendants deny that they have committed or have
attempted to commit any violation of law or breach of duty, including breach of
any duty to DeCrane shareholders, or have otherwise acted in any improper
manner; and

WHEREAS, following document production and arms-length
negotiations between the parties, counsel for the parties have reached an
agreement in principle providing for the proposed settlement of the Action on
the terms and conditions set forth below (the "Settlement"); and

<PAGE>

WHEREAS, counsel for the parties believe that the proposed
Settlement is in the best interests of the public shareholders of DeCrane;

NOW THEREFORE, IT IS HEREBY AGREED IN PRINCIPLE AS
FOLLOWS:

1. Principal terms of Settlement. Subject to the
additional conditions, terms and limitations described herein, as
a result of the bringing of the Action, the parties agree in
principle as follows:

a. Regardless of whether DeCrane is legally required to do so,
DeCrane agrees that it will promptly amend the Schedule 14D-9 dated July 22,
1998 to provide additional disclosure concerning further contacts and
negotiations with other potential acquirers of DeCrane.

b. DeCrane also agrees that it will promptly amend the
Schedule 14D-9 to provide additional disclosure regarding the financial analyses
presented to and considered by the Special Committee in evaluating the
Transaction, and the Special Committee's conclusions regarding later assertions
by DeCrane's then-chief financial officer relating to the fairness opinion
received by DeCrane from its financial advisor.

c. DeCrane also agrees that it will promptly amend the
Schedule 14D-9 to provide additional disclosure regarding financial projections
disclosed to DLJ or other potential acquirers of DeCrane.

d. DeCrane also agrees that it will promptly amend the
Schedule 14D-9 to include information regarding the financial results of DeCrane
for the quarter ended June 30, 1998.

<PAGE>

e. DeCrane agrees that it will mail the amended Schedule 14D-9
to DeCrane shareholders as soon as practicable.

f. Reasonably promptly following the execution of this
Memorandum of Understanding by the parties, DeCrane shall publicly disclose the
terms of the proposed Settlement set forth herein in a manner deemed reasonable
by DeCrane.

2. Stipulation of Settlement. The parties to the Action will
attempt in good faith to agree upon and execute an appropriate Stipulation of
Settlement (the "Stipulation") and such other documentation as may be required
in order to obtain Final Court Approval (as defined below) of the Settlement and
the dismissal of the Action upon the terms set forth in this Memorandum of
Understanding (collectively, the "Settlement Documents"). The Stipulation will
expressly provide, inter alia, that Plaintiff will petition the Court for
certification of a non-opt out settlement class pursuant to Delaware Court of
Chancery Rules 23(b)(1) and (b)(2) of DeCrane shareholders and their successors
in interest and transferees, immediate and remote, from July 16, 1998 through
and including the Effective Time (as defined in the Merger Agreement) (the
"Class"); for entry of a judgment dismissing the Action "with prejudice"; for a
complete release and settlement of all claims, whether asserted directly,
derivatively or otherwise, against defendants or any of their families, parent
entities, affiliates, subsidiaries, predecessors, successors or assigns, and
each and all of their respective past, present or future officers, directors,
associates, stockholders, controlling persons, representatives, employees,
attorneys, financial or investment advisors, consultants, accountants,
investment bankers, commercial bankers, engineers, advisors or agents, heirs,
executors, trustees, general or limited partners or partnerships, personal
representatives, estates or administrators, which have been, or could have been,
asserted relating to the Transaction or Merger Agreement, the actions of
DeCrane, the DeCrane Board (including each member of the DeCrane Board), DLJ or
DeCrane Acquisition relating to the Transaction, the related disclosure
materials, disclosures, facts and allegations that are or could (insofar as such
transactions, disclosures, facts and allegations relate to, or occurred in
connection with, the subject matter of the Action) be the subject of the Action;
that defendants have denied and continue to deny that they have committed or
attempted to commit any violations of law or breaches of duty of any kind; that
defendants are entering into the Stipulation solely because the proposed
Settlement as described above would eliminate the burden, risk and expense of
further litigation, and is in the best interests of DeCrane and all its
shareholders; and that any of the defendants shall have the right to withdraw
from the

<PAGE>

proposed Settlement in the event that (x) any claims related to the Transaction
or the subject matter of the Action (whether direct, derivative or otherwise)
are commenced against any person in any court prior to Final Court Approval of
the Settlement, and such claims are not dismissed or stayed in contemplation of
dismissal or (y) any of the additional conditions set forth in paragraph 4 below
shall not have been satisfied. The parties agree to use their good faith efforts
to obtain the dismissal or stay in contemplation of dismissal of any action
covered by clause (x) in the foregoing sentence and further agree that the
defendants shall have the right to withdraw from this Memorandum of
Understanding if such efforts do not result in the dismissal or stay in
contemplation of dismissal of such an action.

3. Notice and Court Approval. Subject to prior Court approval
of the Stipulation and the form of the Settlement Documents, the parties to the
respective Action will present the Settlement Documents to the Delaware Court of
Chancery for approval as soon as practicable following appropriate notice of the
proposed Settlement to the DeCrane shareholders as to all claims asserted in the
Action by the named Plaintiff and the shareholders of DeCrane on whose behalf
the Action was brought, without costs to any party except as provided herein.
DeCrane shall pay the costs and expenses related to providing notice of the
Settlement to the DeCrane shareholders. As used herein, "Final Court Approval"
of the Settlement means that the Delaware Court of Chancery has entered an order
approving the Settlement and that such order is finally affirmed on appeal or is
no longer subject to appeal and the time for any petition for reargument, appeal
or review, by certiorari or otherwise, has expired. Plaintiff's counsel intend
to apply to the Delaware Court of Chancery for an award of attorneys' fees and
reasonable out-of-pocket disbursements. Subject to the terms and conditions of
this Memorandum of Understanding and the contemplated Stipulation of Settlement,
Plaintiff's counsel will apply for an award of fees and expenses in an amount
not exceeding $375,000, which the defendants and other releasees will not
oppose, to be paid by DeCrane to Bernstein Liebhard & Lifshitz, as receiving
agent for Plaintiff's counsel within five (5) business days of Final Court
Approval of the Settlement.

4. Other Conditions. The consummation of the Settlement is
subject to: (a) consummation of the Transaction, as contemplated in the Merger
Agreement as such may be amended from time to time; (b) the drafting and
execution of the Settlement Documents and the other agreements necessary to
effectuate the terms of the proposed Settlement; (c) the completion by Plaintiff
of appropriate discovery in the Action reasonably satisfactory to Plaintiff's
counsel; and (d) Final Court Approval (as defined above) of the Settlement and
dismissal of the Action with prejudice and without awarding costs to any party,
except as provided herein. This Memorandum of Understanding shall be null and
void and of no force and effect if (i) any of these conditions are not met or
(ii) Plaintiff's counsel in the

<PAGE>

Action determine that the Settlement is not fair and reasonable. In such event,
this Memorandum of Understanding shall not be deemed to prejudice in any way the
positions of the parties with respect to the Action, shall be subject to Rule
408 of the Delaware Rules of Evidence, and shall not entitle any party to
recover any costs or expenses incurred in connection with the implementation of
this Memorandum of Understanding.

5. Interim Stay of the Action. The parties to the Action agree
that except as expressly provided herein, the Action shall be stayed pending
submission of the proposed Settlement to the Court for its consideration.
Plaintiff's counsel agree that the defendants' time to answer or otherwise
respond to the amended complaint in the Action is extended without date. Counsel
shall enter into such documentation as shall be required to effectuate the
foregoing agreements.

6. Miscellaneous. (a) This Memorandum of Understanding may be
executed in counterparts by any of the signatories hereto and as so executed
shall constitute one agreement; (b) this Memorandum of Understanding and the
Settlement contemplated by it shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to that State's rules
concerning conflict of laws; (c) this Memorandum of Understanding shall be
binding upon and inure to the benefit of the parties and their respective
agents, executors, heirs, successors and assigns, subject to the conditions set
forth herein; (d) Plaintiff and its counsel represent and warrant that none of
the claims or causes of action asserted in the Action have been assigned,
encumbered or in any manner transferred, in whole or in part; (e) except as
provided herein, the defendants in the Action shall bear no expenses, costs,
damages or fees alleged or incurred by the Plaintiff, any member of the Class or
their respective attorneys, experts, advisors, agents or representatives; and
(f) the provisions contained in this Memorandum of Understanding shall not be
deemed a presumption, concession or admission by any defendant in the Action of
any breach of duty, liability, default or wrongdoing as to any facts or claims
alleged or asserted in the Action, or in any other actions or proceedings, and
shall not be interpreted, construed, deemed, invoked, offered or received in
evidence or otherwise used by any person in the Action or in any other action or
proceeding of any nature whatsoever.

ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.

<PAGE>

Norman Monhait
Suite 1401, Mellon Bank Center
P.O. Box 1070
Wilmington, DE 19899-1070
(302) 656-4433
Attorneys for Plaintiff

Of Counsel:

BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York, New York 10016
(212) 779-1414

MORRIS NICHOLS ARSHT & TUNNELL

Alan J. Stone
William J. Lafferty
1201 North Market Street
P.O. Box 1347

<PAGE>

Wilmington, Delaware 19899
(302) 658-9200
Attorneys for Defendant DeCrane, R. Jack
DeCrane, and R.G. MacDonald

Of Counsel:

SPOLIN & SILVERMAN
100 Wilshire Boulevard
Suite 940
Santa Monica, CA 90401
(310) 576-1221

POTTER ANDERSON & CORROON LLP

Michael D. Goldman
John E. James
Hercules Plaza
P.O. Box 951
Wilmington, Delaware 19899
(302) 984-6000
Attorneys for Defendants Paul H. Cascio,
Mitchell I. Quain, James R. Bergman, and
Jonathan A. Sweemer

<PAGE>

Of Counsel:

STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038-4982
(212) 806-5400

RICHARDS, LAYTON & FINGER, P.A.

Allen M. Terrell, Jr.
Srinivas M. Raju
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
(302) 658-6541

Attorneys for Defendants Donaldson Lufkin Jenrette, Inc.
and DeCrane Acquisition Co.

Of Counsel:

DAVIS POLK & WARDWELL 450 Lexington Avenue New York, New York 10017
(212) 450-4000