-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tb1LXoFMizh/JBlfrPBSxwcHrPZCW4pF7CO5Sfsmtw5+l7SwYMaLGarhV7DPEZTF /p6sPB4cxQWUpaziUJuyAA== 0001047469-99-008312.txt : 19990305 0001047469-99-008312.hdr.sgml : 19990305 ACCESSION NUMBER: 0001047469-99-008312 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 65 FILED AS OF DATE: 19990303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECRANE AIRCRAFT HOLDINGS INC CENTRAL INDEX KEY: 0000880765 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 341645569 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70365 FILM NUMBER: 99556668 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVENUE STREET 2: SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245-4910 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTECH CORP CENTRAL INDEX KEY: 0000714124 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 910761549 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-03 FILM NUMBER: 99556669 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROSPACE DISPLAY SYSTEMS INC CENTRAL INDEX KEY: 0001080963 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 232859640 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-01 FILM NUMBER: 99556670 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORY COMPONENTS INC CENTRAL INDEX KEY: 0001080968 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 953938746 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-04 FILM NUMBER: 99556671 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DETTMERS INDUSTRIES INC CENTRAL INDEX KEY: 0001080969 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 954693717 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-05 FILM NUMBER: 99556672 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLIGHT REFUELING CENTRAL INDEX KEY: 0001080976 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-11 FILM NUMBER: 99556673 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAECO CENTRAL INDEX KEY: 0001080977 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-13 FILM NUMBER: 99556674 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATS TANKS CENTRAL INDEX KEY: 0001080978 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-12 FILM NUMBER: 99556675 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATS SUPPORT INC CENTRAL INDEX KEY: 0001080979 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-14 FILM NUMBER: 99556676 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATS INC CENTRAL INDEX KEY: 0001080980 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-10 FILM NUMBER: 99556677 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVENUE SUITE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELSINORE AEROSPACE SERVICES INC CENTRAL INDEX KEY: 0001080982 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 952585262 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-06 FILM NUMBER: 99556678 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELSINORE ENGINEERING INC CENTRAL INDEX KEY: 0001080983 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 770443200 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-07 FILM NUMBER: 99556679 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLINGSHEAD INTERNATIONAL INC CENTRAL INDEX KEY: 0001080985 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 952500766 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-08 FILM NUMBER: 99556680 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRI-STAR ELECTRONIC INTERNATIONAL INC CENTRAL INDEX KEY: 0001080986 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 341687242 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-09 FILM NUMBER: 99556681 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUDIO INTERNATIONAL INC CENTRAL INDEX KEY: 0001081014 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 710640962 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-70356-02 FILM NUMBER: 99556682 BUSINESS ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107259123 MAIL ADDRESS: STREET 1: 2361 ROSECRANS AVE STREET 2: STE 180 CITY: EL SEGUNDO STATE: CA ZIP: 90245 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1999 REGISTRATION NO. 333-70365 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- DECRANE AIRCRAFT HOLDINGS, INC. (Exact name of registrant as specified in its charter) (AND CERTAIN SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW) DELAWARE 3728 34-1645569 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code No.) Identification Incorporation or Organization) No.)
2361 ROSECRANS AVENUE, SUITE 180 EL SEGUNDO, CALIFORNIA 90245 (310) 725-9123 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) R. JACK DECRANE Chief Executive Officer DECRANE AIRCRAFT HOLDINGS, INC. 2361 Rosecrans Avenue, Suite 180 El Segundo, California 90245 (310) 725-9123 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES TO: STEPHEN A. SILVERMAN, ESQ. JAMES BRYCE CLARK, ESQ. SPOLIN & SILVERMAN LLP 100 Wilshire Boulevard, Suite 940 Santa Monica, California 90401 (310) 576-1221 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE. -------------------------- If any of the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION TITLE OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE(2) FEE(2) 12% Senior Subordinated Notes due 2008............ $100,000,000 100% $100,000,000 $27,800 Senior Subordinated Guarantees(3).................
(1) The following direct and indirect subsidiaries of DeCrane Aircraft Holdings, Inc. are Co-Registrants (the "guarantors"), incorporated in the state and with the Employer Identification Number indicated: Aerospace Display Systems, Inc. (a Pennsylvania corporation, EIN 23-2859640), Audio International, Inc. (an Arkansas corporation, EIN 71-0640962), Avtech Corporation (a Washington corporation, EIN 91-0761549), Cory Components, Inc. (a California corporation, EIN 95-3938746), Dettmers Industries, Inc. (a Delaware corporation, EIN 95-4693717), Elsinore Aerospace Services, Inc. (a California corporation, EIN 95-2585262), Elsinore Engineering, Inc. (a Delaware corporation, EIN 77-0443200), Hollingsead International, Inc. (a California corporation, EIN 95-2500766), Tri-Star Electronics International, Inc. (a California corporation, EIN 34-1687242), PATS, Inc. (a Maryland corporation, EIN 52-1067232), Flight Refueling (a Maryland corporation, EIN 52-1112836), Patrick Aircraft Tank Systems (a Maryland corporation, EIN 52-1185155), PATS Aircraft and Engineering Corporation (a Maryland corporation, EIN 52-1096518) and PATS Support, Inc. (a Maryland corporation, EIN 52-2010611). (2) Estimated solely for the purpose of determining the registration fee pursuant to Rule 457; fee previously paid. (3) The 12% Series B Senior Subordinated Notes due 2008 are unconditionally, jointly and severally guaranteed by the guarantors on an unsecured, senior subordinated basis. No separate consideration will be paid in respect of the guarantees. -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8, MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXPLANATORY NOTE This Registration Statement covers the registration of an aggregate principal amount of $100,000,000 of 12% Series A Senior Subordinated Notes due 2008 (the "new notes") of DeCrane Aircraft Holdings, Inc. ("DeCrane Aircraft") that may be exchanged for equal principal amounts of our outstanding 12% Series A Senior Subordinated Notes due 2008 (the "old notes") (the "exchange offer"). This Registration Statement also covers the registration of the new notes for resale by Donaldson, Lufkin & Jenrette Securities Corporation in market-making transactions. The complete prospectus relating to the exchange offer follows immediately after this Explanatory Note. Following the prospectus are certain pages of the Prospectus relating solely to such market-making transactions (the "market-making prospectus"), including alternate front and back cover pages, a section entitled "Risk Factors--Trading Market for the New Notes" to be used in lieu of the section entitled "Risk Factors--No Prior Public Market for the Notes," an alternate "Use of Proceeds" section and an alternate "Plan of Distribution" section. In addition, the market-making prospectus will not include the following captions (or the information set forth under such captions) in the exchange offer Prospectus: "Summary--The Exchange Offer," "The Exchange Offer" and "Certain Federal Income Tax Consequences." All other sections of the exchange offer prospectus will be included in the market-making prospectus. PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 3, 1999 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. [LOGO] DeCrane Aircraft Holdings, Inc. OFFER TO EXCHANGE 12% SERIES A SENIOR SUBORDINATED NOTES DUE 2008 FOR 12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED We are offering to exchange an aggregate amount of up to $100,000,000 of our 12% Series B Senior Subordinated Notes due 2008 ("new notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for our existing 12% Series A Senior Subordinated Notes due 2008 ("old notes"). The terms of the new notes are identical in all material respects to the terms of the old notes, except that the new notes have been registered under the Securities Act, and certain transfer restrictions and registration rights relating to the old notes do not apply to the new notes. To exchange your old notes for new notes, you must complete and send the letter of transmittal that accompanies this Prospectus to the exchange agent BY 5:00 P.M. NEW YORK TIME, ON , 1999. (If your old notes are held in book-entry form at The Depository Trust Company, you must instruct DTC through your signed letter of transmittal that you wish to exchange your old notes for new notes. When the exchange offer closes, your DTC account will be changed to reflect your exchange of old notes for new notes.) We will publicly announce any extension or termination of this exchange offer through a release to the Dow Jones News Service and as otherwise required by applicable law or regulations. We will not receive any cash proceeds from the issuance of the new notes. We are not using a dealer-manager in connection with this exchange offer. See "Use of Proceeds" and "Plan of Distribution." SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT YOU SHOULD CONSIDER BEFORE TENDERING YOUR OLD NOTES IN THE EXCHANGE OFFER. This Prospectus and the Letter of Transmittal are first being sent to all registered holders of the old notes as of March , 1999. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1999 SUMMARY THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS OFFERING. IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO FULLY UNDERSTAND THIS OFFERING, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL STATEMENTS AND THEIR RELATED NOTES. THE DEBT SECURITIES REGISTERED BY THIS PROSPECTUS ARE OBLIGATIONS ISSUED BY DECRANE AIRCRAFT HOLDINGS, INC. DECRANE AIRCRAFT'S PARENT COMPANY, DECRANE HOLDINGS CO., IS A HOLDING COMPANY AND DOES NOT HAVE ANY MATERIAL OPERATIONS OR ASSETS OTHER THAN ITS OWNERSHIP OF THE CAPITAL STOCK OF DECRANE AIRCRAFT. THIS PROSPECTUS USES THE PHRASES "DECRANE AIRCRAFT" AND "DECRANE HOLDINGS" WHEN WE REFER TO THOSE COMPANIES SEPARATELY. DECRANE AIRCRAFT REPORTS ITS FINANCIAL INFORMATION ON A CONSOLIDATED BASIS WITH ITS SUBSIDIARIES. REFERENCES IN THIS DOCUMENT TO "WE" AND "US" MEAN DECRANE AIRCRAFT AND ITS SUBSIDIARIES AS A GROUP. EXCEPT FOR HISTORICAL FINANCIAL INFORMATION, AND PLACES WHERE WE INDICATE OTHERWISE, THIS PROSPECTUS PRESENTS ALL INFORMATION ON A "PRO FORMA" BASIS, GIVING EFFECT TO ALL OF THE TRANSACTIONS REFERRED TO IN "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA," INCLUDING THE DLJ ACQUISITION OF DECRANE AIRCRAFT, AND OUR ACQUISITIONS OF AVTECH CORPORATION, DETTMERS INDUSTRIES, INC. AND PATS, INC. OUR COMPANY We manufacture components for avionics and systems (such as aircraft navigation, communications and flight control systems) and related products, and provide systems integration services, for niche markets within the commercial, regional and high-end corporate aircraft industries. We believe that we are a leading provider of components within each niche market we serve. Since DeCrane Aircraft was founded in 1989, our strategy has been to combine complementary businesses with leading market positions. We generated revenues of $206.6 million for the twelve months ended December 31, 1998, and Adjusted EBITDA of $44.5 million for the same period, on a pro forma basis. (Adjusted EBITDA is defined in "Summary Pro Forma Consolidated Financial Data" herein.) We seek to maximize our sales by emphasizing the complementary nature of our products and services. We manufacture: - electrical contacts; - connectors (which often include our contacts); - wire harness assemblies (which often include our connectors); - structural supports for connectors and harnesses (often packaged with other products of ours and sold as "installation kits"); - auxiliary fuel tank systems, which extend the flight range of commercial and corporate aircraft, and auxiliary power systems for ground power; - dichroic liquid crystal display ("LCD") devices, which are often used as part of display panels in flight deck avionics; - cockpit audio and communications, lighting, and power and control devices for commercial aircraft; and - stereo systems, video monitors, passenger switches, cabin lighting, seating and climate controls for the high-end corporate aircraft market. Our systems integration services include design and engineering of avionics systems, certifications on behalf of the Federal Aviation Administration, the assembly of installation kits for systems to be installed ("kitting"), and installation services. Smoke detection, fire suppression and in-flight entertainment systems for aircraft are among the systems for which we supply design, certification, assembly and/or installation services. We manufacture many of the components required to complete a 2 systems integration project. We believe that our combination of strong component manufacturing and integration capabilities gives us a critical competitive advantage, which would be difficult for competitors to duplicate. By successfully combining and growing complementary businesses, we have achieved strong revenue growth. From 1994 to 1998, our revenues increased from $47.1 million to $150.5 million on a historical basis. That increase resulted in a compound annual growth rate of 33.7%. During the same period, DeCrane Aircraft's EBITDA increased from $5.2 million to $26.9 million on a historical basis, representing a combined annual growth rate of 50.8%. We have realized this growth primarily by: - obtaining new customers and additional business from existing customers; - selectively acquiring complementary avionics businesses, generally with high margins; - taking advantage of favorable trends in the aerospace industry (discussed below); - initiating cost reduction programs and productivity improvements; and - increasing the revenues of acquired businesses, by refocusing or diversifying their strategies and products. Since 1990, we have completed twelve acquisitions, most recently Avtech Corporation and Dettmers Industries, Inc. in June 1998, and PATS, Inc. in January 1999. We believe that demand for our products and services continues to increase as a result of several favorable industry trends such as: - the general increase in new aircraft production; - the increasing demand for cabin and flight deck systems; - the increase in new safety requirements in the U.S. and the adoption by other countries of similar requirements; - the consolidation of approved suppliers and vendors; and - the increased outsourcing of products and services. We have established strong positions in several specialized niches within the commercial aircraft industry. We believe that we are: - the largest supplier of bulk contacts to commercial aircraft original equipment manufacturers (called "OEMs"); - the largest supplier of dichroic LCD devices for use by commercial aircraft OEMs; - the largest provider of aircraft entertainment and cabin management products and systems for the high-end corporate aircraft market; - a major supplier of wire harness assemblies for use in in-flight entertainment systems; and - a leading supplier of cockpit audio controls. We believe that we are well-positioned to take advantage of the foregoing trends and expected growth, as a result of the following competitive strengths: - a diversified revenue base, spanning multiple markets which typically experience different production cycles; - complementary and strategically integrated business lines; - strong customer relationships; - low-cost, high-quality operations; and - authorization to perform key regulatory certifications. 3 We intend to grow our businesses by: - capitalizing on growth in aircraft production and increased demand for cabin and flight deck systems; - emphasizing integrated product systems and complementary services; - expanding and diversifying systems integration services; and - completing additional strategic acquisitions. RECENT DEVELOPMENTS Until August 1998, we were a publicly-held company. In August 1998, a holding company organized by DLJ Merchant Banking Partners II, L.P. and affiliated funds and entities completed a successful tender offer for all shares of our common stock. See "Recent Developments--The DLJ Acquisition." In January 1999, we acquired 100% of the stock of PATS, Inc., a manufacturer of auxiliary fuel tank systems and other products. See "Recent Developments--PATS, Inc." RISK FACTORS Investing in the notes involves certain risks. See the section on "Risk Factors." ------------------------ 4 WHERE YOU CAN GET MORE INFORMATION Each registered purchaser of the old notes from the initial purchaser will receive a copy of this Prospectus and any related amendments or supplements. Any registered purchaser may request from us any information it wishes in order to verify the information in this Prospectus. Apart from this Prospectus and any responses we make to those requests, no-one is authorized to give information about this exchange offer or the notes on our behalf. We have filed with the Securities and Exchange Commission a registration statement on the SEC's Form S-1, to register the new notes. This Prospectus is a part of that registration statement. However, the registration statement has additional information which is not included here, in accordance with SEC rules. Our descriptions and statements about any contract or other document in this Prospectus are summaries. We are required to attach copies of most important contracts and documents as exhibits to the registration statement. Our fiscal year ends on December 31. We intend to become a reporting company as a result of the registration of the notes, and file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information we file at the SEC's reference room in Washington D.C. (Please call the SEC at (202) 942-8090 for further information on the operation of the reference rooms.) You can also request copies of these documents, upon payment of a duplicating fee, by writing to the SEC, or review our SEC filings on the SEC's EDGAR web site, which can be found at http\\www.sec.gov. If you want more information, write or call us at our corporate headquarters located at 2361 Rosecrans Avenue, Suite 180, El Segundo, California 90245. Our telephone number is (310) 725-9123. 5 THE EXCHANGE OFFER We are offering to exchange up to $100,000,000 in principal amount of the new notes for a like amount of old notes. We are making this offering in order to satisfy our obligations under the Registration Rights Agreement relating to the old notes. The terms of the new notes and the old notes are substantially the same in all material respects, except that the new notes will not be subject to liquidated damages penalties for failure to timely register the notes under the Securities Act, and will be more freely transferable by the holders thereof by reason of their registration thereunder. See "Description of Notes." Expiration Date.............. 5:00 p.m., New York City time, on , 1999, unless this exchange offer is extended by us. We will publicly announce any extension or termination of this exchange offer through a release to the Dow Jones News Service and as otherwise required by applicable law or regulations. See "The Exchange Offer--Terms of the Exchange Offer; Period for Tendering Old Notes." Certain Conditions to this Exchange Offer............... Our obligation to complete this exchange offer is subject to several conditions. We reserve the right to delay the acceptance of old notes for exchange, terminate this exchange offer, extend its expiration date and retain the old notes tendered (subject to your right to withdraw them, noted below), or amend the terms of this exchange offer in any respect. See "The Exchange Offer--Terms of the Exchange Offer; Period for Tendering Old Notes" and "--Certain Conditions to the Exchange Offer." Withdrawal Rights............ If you tender old notes, you may withdraw them at any time on or before 5:00 p.m., New York City time on the expiration date, by delivering a written notice of such withdrawal to the Exchange Agent in the manner described under "The Exchange Offer--Withdrawal Rights." Procedures for Tendering Old Notes........................ In order to tender old notes and accept this exchange offer, you must: - complete and sign a Letter of Transmittal, and comply with the instructions which it contains, - forward it (and any other required documents) using a method of delivery permitted by the Letter of Transmittal to the Exchange Agent appointed by us, whose address appears in the Letter of Transmittal, by 5:00 p.m. New York City time on the expiration date, and - either deliver your old notes in the same package, or comply with the guaranteed postponed delivery method noted below. Please note that, if your old notes are held through a broker, dealer, commercial bank, trust company or other nominee, you must contact that person promptly if you wish to tender your notes. See "The Exchange Offer--Procedures for Tendering Old Notes." Questions regarding how to tender and requests for information should be directed to the Exchange Agent. See "The Exchange Offer-- Exchange Agent." Some brokers, dealers, commercial banks, trust companies and other nominees may also tender by book-entry transfer
6 Guaranteed Delivery Procedures................... If you wish to tender your old notes, and they are not readily available, or you cannot deliver them before the expiration date for this exchange offer, you must tender them according to the guaranteed postponed delivery procedures described in "The Exchange Offer-- Guaranteed Delivery Procedures." Restrictions on Resales of New Notes.................... We believe that the new notes issued under this exchange offer, in exchange for old notes, may be offered for resale, resold and otherwise transferred by a holder (other than a broker or dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, if: - the new notes are acquired in the ordinary course of the holder's business; - the holder is able to make the representations to us about the foregoing and related matters which are described in "The Exchange Offer--Resale of New Notes" and in the Letter of Transmittal; - the holder is not participating, and has not entered into an arrangement or understanding to participate, in a distribution of the new notes (as "distribution" is understood under the Securities Act); - the holder is not our affiliate (as "affiliate" is defined in Rule 405 under the Securities Act), or a broker or dealer who purchased the old notes for resale; and - the holder is not a broker or dealer acquired for its own account. However, the foregoing view relies on statements by the staff of the Division of Corporation Finance of the Securities and Exchange Commission, in interpretive letters which discuss other transactions. We have not sought our own interpretive letter, so there is no definitive legal determination of the foregoing issue. Acceptance of Old Notes and Offer, Delivery of New Notes........................ If you tender old notes to us before 5:00 p.m. New York City time on the day this exchange offer expires, you have not withdrawn them, and you comply with all of the requirements described in this Prospectus, we will promptly deliver new notes to you after the expiration date. See "The Exchange Offer--Acceptance of Old Notes for Exchange; Delivery of New Notes." Exchange Agent............... The exchange agent for this exchange offer is State Street Bank and Trust. Its telephone and facsimile numbers are listed in "The Exchange Offer--Exchange Agent" and in the Letter of Transmittal. Use of Proceeds.............. We will not receive any cash proceeds from the issuance of the new notes. See "Use of Proceeds." Certain United States Tax Consequences................. You should review the information under "Certain United States Tax Consequences" before you tender any old notes in this exchange offer.
7 THE NOTES Maturity Date................ September 30, 2008. Interest Payment Dates....... Each March 30 and September 30, beginning March 30, 1999. Optional Redemption.......... We can choose to redeem all or some of the Notes, in cash, - on or after September 30, 2003, for a redemption price specified herein; - on or before September 30, 2001, with the net cash proceeds of any public equity offerings, for a redemption price based on 112% of the principal amount (but we may only redeem 35% of the notes in that case); and - before September 30, 2003, if the change of control events which are described herein occur, and we redeem 100% of the notes, for a redemption price specified herein. See "Description of Notes-- Optional Redemption." Change of Control............ You can require that we repurchase your notes, in cash, if the change of control events which are described herein occur, for a redemption price based on 101% of the principal amount. See "Risk Factors-- Possible Inability to Repurchase Notes upon Change of Control" and "Description of Notes--Repurchase of the Option of Holders Upon Change of Control." Ranking; Guarantors.......... The notes rank junior to the senior indebtedness and secured debt of DeCrane Aircraft, including the debt owed under our bank credit facility. The notes rank equally with any future unsecured, senior subordinated debt of DeCrane Aircraft. The notes are unconditionally guaranteed on a senior subordinated basis by all of our existing wholly-owned domestic subsidiaries, and rank junior to such grantors' senior and unsecured debt and equally with their future unsecured, senior debt. The notes will effectively rank junior to all liabilities of our subsidiaries that are not guarantors. See "Description of Notes-- Note Guarantees." As of December 31, 1998, on a pro forma basis, DeCrane Aircraft and its subsidiary guarantors would have had approximately $124.4 million of senior indebtedness outstanding, and the non-guarantor subsidiaries would have had approximately $2.2 million of liabilities outstanding, including trade payables. Certain Covenants............ The Indenture includes covenants that, among other things, limit the ability of DeCrane Aircraft and our subsidiaries defined as "Restricted Subsidiaries" to; - incur debt; - issue preferred stock; - repurchase capital stock or subordinated debt; - enter into transactions with affiliates; - enter into sale and leaseback transactions; - incur liens, or allow them to exist;
8 - pay dividends or other distributions; - make investments; - sell assets; and - enter into mergers or consolidations. See "Description of Notes---Certain Covenants." The Warrants; the Units...... The old notes were originally sold as "units," paired with warrants for the common stock of DeCrane Aircraft's parent company, DeCrane Holdings. The warrants may trade separately from the notes on and after the effective date of the registration statement of which this Prospectus is a part. The warrants are subject to a separate "shelf" registration statement filed concurrently. See "Description of Notes" and "The Initial Offering."
9 SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA The table below presents summary unaudited pro forma consolidated financial data for DeCrane Aircraft. The summary unaudited pro forma financial data were derived from historical financial data and give pro forma effect to the transactions described in the unaudited pro forma consolidated financial statements included elsewhere in this Prospectus. The pro forma financial data do not purport to represent what the actual results of operations or actual financial position would have been if such transactions had actually occurred on such dates or to project the future results of operations or financial position. The information in this table should be read in conjunction with "Recent Developments," "The Initial Offering," "Selected Consolidated Financial Data," "Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the DeCrane Aircraft consolidated financial statements and related notes included elsewhere in this Prospectus.
TWELVE MONTHS ENDED DECEMBER 31, 1998(1) ------------- (DOLLARS IN THOUSANDS) PRO FORMA STATEMENT OF OPERATIONS DATA: Revenues........................................................................................... $ 206,645 Gross profit (2)................................................................................... 65,614 Operating income................................................................................... 21,570 Provision for income taxes......................................................................... 1,056 Loss before extraordinary item..................................................................... (4,269) OTHER PRO FORMA FINANCIAL DATA: EBITDA (3)......................................................................................... $ 41,283 EBITDA margin...................................................................................... 20.0% Adjusted EBITDA (4)................................................................................ $ 44,476 Adjusted EBITDA margin............................................................................. 21.5% Depreciation and amortization (5).................................................................. $ 15,265 Capital expenditures............................................................................... 6,314 Cash interest expense.............................................................................. 22,927 Adjusted EBITDA to cash interest expense........................................................... 1.9x Ratio of earnings to fixed charges (6)............................................................. -- OTHER OPERATING DATA: Bookings (7)....................................................................................... $ 212,962 Backlog at end of period (8)....................................................................... 115,057
AS OF DECEMBER 31, 1998 (1) ------------- (DOLLARS IN THOUSANDS) PRO FORMA BALANCE SHEET DATA: Cash and cash equivalents.......................................................................... $ 6,022 Working capital.................................................................................... 53,503 Total assets....................................................................................... 383,315 Total debt (9)..................................................................................... 224,715 Stockholder's equity............................................................................... 97,921
See accompanying notes to Summary Pro Forma Consolidated Financial Data. 10 NOTES TO SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA (1) Reflects the following as if each had occurred as of January 1, 1998: (i) the Avtech, Dettmers and PATS acquisitions; (ii) the DLJ acquisition; and (iii) the initial offering. See "Recent Developments," "The Initial Offering" and "Unaudited Pro Forma Consolidated Financial Data." (2) Net of $4.4 million of non-cash acquisition related charges to reflect cost of sales based on the fair value of inventory acquired in connection with the DLJ acquisition. (3) EBITDA equals operating income plus depreciation, amortization and non-cash acquisition related charges described in Note 2 above. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of DeCrane Aircraft's operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard measure of liquidity commonly reported and widely used by analysts, investors and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method and the EBITDA numbers set forth above may not be comparable to EBITDA reported by other companies. (4) Adjusted EBITDA equals EBITDA plus the following nonrecurring charges:
TWELVE MONTHS ENDED DECEMBER 31, 1998 ------------- (DOLLARS IN THOUSANDS) EBITDA (See Note 3 above).......................................................... $ 41,283 Adjustment for nonrecurring charges: Workforce reductions............................................................. 2,430 Engineering costs................................................................ 350 Reduction of corporate expenses.................................................. 310 Non-cash stock option compensation expense....................................... 73 Expiration of employment contract for a former shareholder of a previously acquired company............................................................... 30 ------------- Total adjustments.............................................................. 3,193 ------------- Adjusted EBITDA.................................................................... $ 44,476 ------------- -------------
(5) Reflects depreciation of plant and equipment and amortization of goodwill and other intangible assets. Excludes amortization of deferred financing costs and debt discounts, which is classified as a component of interest expense. (6) For purposes of calculating the ratio of earnings to fixed charges, earnings represent net income before income taxes, minority interest in the income of majority-owned subsidiaries, extraordinary items and fixed charges. Fixed charges consist of: (i) interest, whether expensed or capitalized; (ii) amortization of debt expense and discount relating to any indebtedness, whether expensed or capitalized; and (iii) one-third of rental expense under operating leases which is deemed to be representative of the interest factor. There was a pro forma deficiency of earnings to fixed charges for the year ended December 31, 1998 of $3.1 million. (7) Bookings represent the total invoice value of purchase orders received during the period. See "Business--Backlog." (8) Orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of the Company's receipt of orders and the speed with which those orders are filled. See "Business-- Backlog." (9) Total debt is defined as long-term debt, including current portion, and short-term borrowings. 11 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA The table below presents summary historical consolidated financial data for DeCrane Aircraft. The summary historical financial data for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998 were derived from audited financial statements of DeCrane Aircraft. The information in this table should be read in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and DeCrane Aircraft's consolidated financial statements and related notes included elsewhere in this Prospectus.
(PREDECESSOR) ------------------------------------------------------- (SUCCESSOR) EIGHT ----------- MONTHS FOUR MONTHS YEAR ENDED DECEMBER 31, ENDED ENDED ------------------------------------------ AUGUST 31, DECEMBER 1994 1995 1996(1) 1997(2) 1998(3) 31, 1998(3) --------- --------- --------- --------- ----------- ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues................ $ 47,092 $ 55,839 $ 65,099 $ 108,903 $ 90,077 $ 60,356 Gross profit(4)......... 10,685 12,376 15,707 28,656 29,976 17,617 Operating income........ 1,760 1,835 4,251 11,995 9,278 4,195 Interest expense........ 3,244 3,821 4,248 3,154 2,350 6,852 Provision for income taxes (benefit)(5).... 613 1,078 712 3,344 2,892 (2,668) Income (loss) before extraordinary item.... (2,429) (3,446) (817) 5,254 3,189 (324) Extraordinary loss from debt refinancing(6)... (264) -- -- (2,078) -- (2,229) Net income (loss)....... (2,693) (3,446) (817) 3,176 3,189 (2,553) OTHER FINANCIAL DATA: EBITDA(7)............... $ 5,196 $ 5,471 $ 7,602 $ 16,915 $ 13,636 $ 13,247 EBITDA margin........... 11.0% 9.8% 11.7% 15.5% 15.1% 21.9% Depreciation and amortization(8)....... $ 3,436 $ 3,636 $ 3,351 $ 4,920 $ 4,358 $ 4,604 Capital expenditures(9)....... 1,016 1,203 5,821 3,842 1,745 1,813 Ratio of earnings to fixed charges(10)..... -- -- 1.0x 3.3x 3.0x -- OTHER OPERATING DATA: Bookings(11)............ $ 47,896 $ 50,785 $ 81,914 $ 112,082 $ 94,439 $ 54,021 Backlog at end of period(12)............ 24,493 19,761 44,433 49,005 84,184 75,388
AS OF DECEMBER 31, BALANCE SHEET DATA: 1998(13) ----------- Cash and cash equivalents....................................................... $ 3,518 Working capital................................................................. 46,033 Total assets.................................................................... 330,927 Total debt(14).................................................................. 186,765 Stockholders' equity............................................................ 97,921
See accompanying notes to Summary Historical Consolidated Financial Data. 12 NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA (1) Includes the effect of the acquisition of the remaining 25% minority interest in Cory Components beginning February 20, 1996, the date on which the transaction occurred, and the results of Aerospace Display Systems and Elsinore Aerospace Services, Inc. and Elsinore Engineering, Inc. (collectively, "Elsinore") beginning September 18, 1996 and December 5, 1996, respectively, the dates on which they were acquired. (2) Includes the effect of the acquisition of Audio International beginning November 14, 1997, the date on which it was acquired. (3) The results of operations of Avtech and Dettmers, which were acquired on June 26, 1998 and June 30, 1998, respectively, have been included in DeCrane Aircraft's results of operations for the periods subsequent to their acquisitions. The results of operations for the four months ended December 31, 1998 also reflect the DLJ acquisition. (4) Net of $4.4 million of non-cash charges for the four months ended December 31, 1998 to reflect cost of sales based on the fair value of inventory acquired in connection with the DLJ acquisition. (5) Prior to the acquisition of the remaining 25% minority interest in Cory Components in 1996, DeCrane Aircraft did not consolidate the earnings of Cory Components for tax purposes. As such, despite a consolidated pre-tax loss in each of the years, DeCrane Aircraft recorded a provision for income taxes up to the date of the acquisition in February 1996 which primarily relates to Cory Components. (6) Represents: (i) the write-off, net of an income tax benefit, of deferred financing costs, unamortized original issue discounts, a prepayment penalty and other related expenses incurred as a result of the repayment of debt by the Company with the net proceeds from its initial public offering in April 1997; (ii) the write-offs, net of income tax benefit, of deferred financing costs as a result of the repayment of DeCrane Aircraft's existing indebtedness in connection with the DLJ acquisition and the refinancing of the bridge notes during the four months ended December 31, 1998. (7) EBITDA equals operating income plus depreciation, amortization and non-cash acquisition related charges described in Note 4 above. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of DeCrane Aircraft's operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard measure of liquidity commonly reported and widely used by analysts, investors and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method and the EBITDA numbers set forth above may not be comparable to EBITDA reported by other companies. (8) Reflects depreciation and amortization of plant and equipment and goodwill and other intangible assets. Excludes amortization of deferred financing costs and debt discounts which is classified as a component of interest expense. (9) Includes $4.4 million for the year ended December 31, 1996 related to the acquisition of a manufacturing facility. See "Business--Acquisition History." (10) For purposes of calculating the ratio of earnings to fixed charges, earnings represent net income before income taxes, minority interest in the income of majority-owned subsidiaries, extraordinary items and fixed charges. Fixed charges consist of: (i) interest, whether expensed or capitalized; (ii) amortization of debt expense and discount relating to any indebtedness, whether expensed or capitalized; and (iii) one-third of rental expense under operating leases which is deemed to be representative of the interest factor. There was a deficiency of earnings to fixed charges for the 13 years ended December 31, 1994 and 1995 and the four months ended December 31, 1998 of $1.8 million, $2.3 million and $2.9 million, respectively. (11) Bookings represent the total invoice value of purchase orders received during the period. See "Business--Backlog." (12) Orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of DeCrane Aircraft's receipt of orders and the speed with which those orders are filled. See "Business--Backlog." (13) Reflects the DLJ acquisition. (14) Total debt is defined as long-term debt, including current portion, and short-term borrowings. 14 RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION AS PART OF YOUR EVALUATION OF OUR COMPANY AND ITS BUSINESS BEFORE TENDERING YOUR OLD NOTES IN EXCHANGE FOR THE NEW NOTES. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements in this Prospectus discuss future expectations, beliefs or strategies, projections or other "forward-looking" information. These statements are subject to both known and unknown risks. Many factors could cause actual company results, performance or achievements, or industry results, to be materially different from the projections expressed or implied by this Prospectus. Some of those risks are specifically described below, but we are also vulnerable to a variety of elements that affect many businesses, such as: - - fuel prices and general economic conditions that affect demand for aircraft and air travel, which in turn affect demand for our products and services; - - changes in prevailing interest rates and the availability of financing to fund our plans for continued growth; - - inflation, and other general changes in costs of goods and services; - - liability and other claims asserted against us; - - labor disturbances; - - risks associated with Year 2000 performance standards; and - - changes in operating strategy, or our acquisition and capital expenditure plans. We cannot predict any of the foregoing with certainty, so our forward-looking statements are not necessarily accurate predictions. Also, we are not obligated to update any of these statements, to reflect actual results or report later developments. You should not rely on our forward-looking statements as if they were certainties. SUBSTANTIAL LEVERAGE We incurred significant debt as part of the DLJ acquisition transaction. As of December 31, 1998, on a pro forma basis, we would have had total consolidated indebtedness of approximately $224.7 million, and would have available $26.7 million of additional revolving borrowings under our bank credit facility. (In order to borrow those funds, we will have to satisfy funding conditions of the kind usually imposed in similar agreements.) The bank credit facility, and the Indenture under which the notes are issued, each also permit us to incur significant amounts of additional debt, and to secure that debt with some of our assets. The amount of debt we carry could have important consequences: - it may limit the cash flow available for general corporate purposes, and acquisitions, because a substantial portion of our cash flow must be dedicated to repay the debt; - it may limit our ability to obtain additional debt financing in the future for working capital, capital expenditures or acquisitions; - it may limit our flexibility in reacting to competitive and other changes in the industry and economic conditions generally; and - it may expose us to increased interest expenses, when interest rates fluctuate, because some of our borrowing may be at variable "floating" rates. 15 Our ability to satisfy all of our debt obligations will depend upon our future operating performance and the cash flow it generates. We anticipate that our operating cash flow, together with borrowings under our bank credit facility, will be sufficient to meet our anticipated future operating and capital expenditures and debt payments as they become due. However, if our cash flow is lower than we expect, we might be forced to reduce or delay acquisitions or capital expenditures, sell assets or reduce operating expenses, in order to make all required loan payments. For example, a reduction in our operating expenses might reduce important efforts such as selling and marketing programs, management information system upgrades and new product development. If we were unable to service the debt, we could attempt to restructure or refinance our indebtedness or seek additional equity capital. However, we cannot assure you that we will be able to accomplish any of the foregoing on satisfactory terms, or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." RESTRICTIONS AND FINANCIAL COVENANTS IN OUR DEBT AGREEMENTS The Indenture for the notes and our bank credit facility each impose various contractual restrictions on our operations and businesses. Both restrict our ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, enter into certain types of transactions with affiliates, limit the ability of certain of our subsidiaries to pay dividends or make certain payments to DeCrane Aircraft, merge or consolidate with any other person, or transfer, lease or otherwise dispose of substantially all of our assets. Our bank credit facility contains additional restrictions, and prohibits us from prepaying our other indebtedness (including the notes). See "Description of Bank Credit Facility" and "Description of Notes--Certain Covenants." Our bank credit facility requires that we maintain specified financial ratios and satisfy several tests of financial condition. Our ability to do so can be affected by events beyond our control, and we cannot assure you that we will meet those tests. Our failure to do so could result in a default under our bank credit facility or the notes. SUBORDINATION OF THE NOTES TO SENIOR DEBT; POSSIBLE ADDITIONAL SUBORDINATED DEBT The notes are general unsecured obligations of DeCrane Aircraft and of those of its subsidiaries which have provided note guarantees. The notes rank lower in right of payment than most of the debt of those companies (including the amounts owed under the bank credit facility). The senior creditors have rights which might reduce the payments made to you as a holder of the notes. Among other things: - As of December 31, 1998, on a pro forma basis, DeCrane Aircraft and the guarantor subsidiaries would have had outstanding about $124.4 million of senior debt. We would be required to pay all of this senior debt in full, before paying the holders of the notes, if DeCrane Aircraft or one of the guarantor subsidiaries suffers a bankruptcy filing, insolvency, liquidation or similar event; or if our senior debt is accelerated. - Also, we are blocked from paying holders of the notes whenever there is a payment default on senior debt, and principal and premium payments may also be blocked for up to 179 days while there is a non-payment default on senior debt. See "Description of Notes--Subordination" for the terms of this subordination. - The bank credit facility is secured by our key assets (excluding assets of our foreign subsidiaries). If the senior debt defaults, the lenders could choose to declare all outstanding amounts immediately due and payable, and seek foreclosure of the property we granted to them as collateral. We cannot assure you that, if our bank credit facility were accelerated, our assets would be sufficient to repay all of our debt (including the notes) in full. 16 - Holders of debt and other liabilities of our subsidiaries that are not guarantors will also have claims that are effectively senior to the notes. As of December 31, 1998, on a pro forma basis, our non-guarantor subsidiaries would have had $2.2 million of outstanding liabilities, including trade payables. We are also allowed to incur additional debt with the same payment priority ("PARI PASSU") as the notes. In that case, its holders would be entitled to share with you in any proceeds paid from our assets. HOLDING COMPANY STRUCTURE; RELIANCE ON CASH FLOW FROM SUBSIDIARIES We conduct all of our operations through subsidiaries. DeCrane Aircraft's ability to meet its debt service obligations will depend upon it receiving dividends from those operations. The Indenture may allow our subsidiaries to enter into future loan agreements which restrict or prohibit them from paying dividends to DeCrane Aircraft. See "Description of Notes--Certain Covenants." State law may also limit the amount of the dividends that our subsidiaries are permitted to pay to DeCrane Aircraft. HISTORICAL NET LOSSES On a pro forma basis, we would have had a $4.3 million loss before extraordinary item for the twelve months ended December 31, 1998. See "Unaudited Pro Forma Consolidated Financial Data." In the past, our acquisitions resulted in increased interest and amortization expenses. As a result we incurred historical net losses in each year from our inception through 1996, despite positive operating income. The first historical net profit we reported occurred in 1997, in part because of the repayment of a significant part of our outstanding debt with the net proceeds of our initial public offering. We cannot assure you that our future operations will generate sufficient earnings to pay our obligations. See "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISKS ASSOCIATED WITH ACQUISITIONS Our ability to grow by acquisition depends on the availability of suitable acquisition candidates and capital, and by restrictions contained in our bank credit facility and the Indenture. We are continually engaged in discussions with potential acquisition candidates. However, it is not certain that we will complete any potential acquisition. It is also not certain whether we will be able to identify suitable acquisition candidates, complete acquisitions or obtain satisfactory financing for them. Also, we may have difficulty integrating the operations and personnel of acquired companies, or amortizing acquired intangible assets. We may not always be able to retain the key employees of acquired companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--Acquisition History" and "Business--Growth Strategy." AIRCRAFT INDUSTRY RISKS Our principal customers include the world's OEMs in the commercial, regional, corporate and military aircraft markets. - COMMERCIAL AIRCRAFT. The principal market for OEMs of commercial aircraft (100 seats and over) is the commercial airline industry, which is cyclical and has been adversely affected by a number of factors, including increased fuel and labor costs and intense price competition. For example, new commercial aircraft deliveries declined from a peak of approximately 767 aircraft in 1991 to approximately 367 aircraft in 1995, according to AEROSPACE AND AIRTRANSPORT CURRENT ANALYSIS published by Standard and Poor's Industry Surveys (the "S&P Report"); and Boeing has also recently announced production line cutbacks for 1999 and 2000. 17 - REGIONAL AIRCRAFT. The principal markets for regional OEMs are the commercial and commuter airline industry. Commuter airlines, like commercial airlines, operate in a cyclical industry subject to the adverse factors noted above. We cannot assure you that this market will continue to grow. - CORPORATE AIRCRAFT. The principal markets for such OEMs are corporations and wealthy individuals. The corporate aircraft market is also cyclical and has been adversely affected by a number of factors, including the general state of the U.S. economy, corporate profits, interest rates and commercial airline fares. A downturn in any of these factors could depress the demand for corporate aircraft. - MILITARY AIRCRAFT. The military aircraft industry is dependent upon the level of equipment expenditures by the armed forces of countries throughout the world, and especially those of the United States. In recent years, this industry has been adversely affected by a number of factors, including the reduction in military spending since the end of the Cold War. Further decreases in military spending could further depress demand for military aircraft. A downturn in any of the foregoing markets could adversely affect our business. See "Business-- Industry Overview and Trends." DEPENDENCE ON KEY CUSTOMERS Our two largest customers for the fiscal year ended December 31, 1998, were Boeing (including McDonnell Douglas) and Matsushita Avionics Systems ("Matsushita"). Boeing accounted for approximately 29.6% of our consolidated revenues for that year, and Matsushita for approximately 5.0%, on a pro forma basis. In addition, a significant part of our sales of components are sold to Boeing indirectly, through sales to suppliers of Boeing. Most of our sales contracts with Boeing allow Boeing to stop purchasing or terminate the contract at any time. In addition, under certain circumstances, those contracts may allow Boeing to enforce alternative economic terms, which would make the contracts less commercially favorable to us. During October 1997, Boeing announced that parts shortages adversely affected its production and delivery rates. Boeing shut down its 737 and 747 production lines for approximately one month and did not resume normal production rates until late November 1997. In late 1998, among other things, Boeing announced reductions in its previously scheduled production for the 747, 757, 767 and 777 programs in 1999 and 2000. (See "--Instability in Asian Markets," below.) Boeing might suffer further production schedule disruptions. Boeing recently announced internal studies indicating that about one-fourth of its product lines are not likely to be profitable as currently conducted. Boeing did not disclose which lines fail to return break-even or positive returns; however, it has previously acknowledged that some of its commercial airplane programs were not meeting expectations. Boeing plans to announce specific growth and profit information for its commercial aircraft product lines later in 1999. We generally sell components and services to Matsushita pursuant to purchase orders, rather than under long-term contracts. However, we do have a supply agreement for connectors through September 1999. On a pro forma basis, in the twelve months ended December 31, 1998 as compared to the same period in 1997, our sales to Boeing increased $25.5 million while our sales to Matsushita declined by $1.8 million. A significant decline in business from any one of our key customers could have a material adverse effect on our business. See "Business--Customers" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." INSTABILITY IN ASIAN MARKETS The Asian markets are important for commercial aircraft and avionics OEMs. Boeing has a large backlog of aircraft sales to customers in Asia, and some deliveries have been deferred or cancelled. Boeing has characterized the economic situation in Asia as a risk to its deliveries over the next few 18 years. It has previously announced scheduled production slowdowns for 747s (from five aircraft per month to three and a half, in the second quarter of 1999) and 777s (from seven aircraft per month to five, in the fourth quarter of 1999). Boeing continues to reassess its production rates based on Asian demand and expects to make downward revisions based on its customer requirements. That situation could, if it continues or worsens, result in additional significant cancellations or deferrals of deliveries for new aircraft. Those events would adversely affect the OEMs, which could have a material adverse effect on our business. PRODUCTS INSURANCE AND RISKS OF EXCESS LOSSES We currently carry aviation products insurance. However, we cannot assure you that our existing insurance coverage will be adequate to cover claims, or that such coverage can be renewed. REGULATION BY THE FAA The Federal Aviation Administration prescribes standards and licensing requirements for aircraft components, licenses private repair stations and issues Designated Air Station approvals, which give the holder the right to certify certain aircraft design modifications on behalf of the FAA. Our ability to arrange for rapid government certification of systems integration services is important to our business. It depends on our continuing access to, or use of, these FAA certifications and approvals, and our employment of, or access to, FAA-certified individual engineering professionals. We cannot assure you that we will continue to have adequate access to those certifications, approvals and certified professionals. The FAA curtailed our subsidiary's use of a Designated Air Station certification for new projects for several months during 1997, until the facility was brought into compliance with the FAA's regulations governing FAA-certified repair stations. See "Business--Industry Regulation." The loss of a required license or certificate, or its unavailability, could adversely affect our operations. The FAA could also change its policies regarding the delegation of inspection and certification responsibilities to private companies, which could adversely affect our business. See "Business--Industry Regulation." FLUCTUATIONS IN GOLD AND COPPER PRICES A significant portion of the cost of the materials used in our contacts is comprised of the cost of gold, and to a lesser extent, the cost of copper. Accordingly, a significant increase in the price of gold or copper could adversely affect our results of operations. We have not purchased commodities contracts for gold or copper and do not anticipate doing so. See "Business--Raw Materials and Component Parts." LIMITED SUPPLY OF QUALIFIED ENGINEERING PERSONNEL Our ability to attract and retain a high-quality engineering staff is important to our business. Competition for qualified avionics engineers is intense. We cannot assure you that we will be able to retain our existing engineering staff or fill new positions or vacancies created by expansion or turnover. See "Business--Products and Services" and "Business--Employees." ENVIRONMENTAL RISKS AND REGULATIONS We are subject to various local and foreign environmental laws and regulations. Certain laws, particularly the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), impose strict, retroactive and joint and several liability upon persons responsible for releases or potential releases of hazardous substances. We have sent waste to treatment, storage or disposal facilities that have been designated as National Priority List sites under CERCLA or equivalent listings under state laws. We have received CERCLA requests for information or allegations of potential responsibility from the Environmental Protection Agency regarding our use of 19 certain such sites. Given the retroactive nature of CERCLA liability, it is possible that we will receive additional notices of potential liability relating to current or former activities. See "Business-- Environmental Matters." We may incur costs in the future for prior waste disposal by us or former owners of our subsidiaries or our facilities. Some of our operations are located on properties which are contaminated to varying degrees. Some of our manufacturing processes create wastewater which requires chemical treatment, and one of our facilities has been cited for failure to adequately treat that water. See "Business--Legal Proceedings." We may incur costs in the future to address existing or future contamination. EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS We have a manufacturing facility in Switzerland, and incur in Swiss Francs a significant percentage of the cost of the contact blanks we manufacture there. As a result our financial results are subject to fluctuations of the Swiss Franc in relation to the U.S. Dollar. From 1996 through 1998, in order to reduce the risks of currency fluctuations, we have entered into forward exchange contracts to purchase Swiss Francs. We expect to continue to hedge our foreign exchange risk as appropriate. We do not invest in foreign currency for speculative purposes. However, we cannot assure you that our hedging activities will prevent currency fluctuations from adversely affecting our results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPLIANCE OF KEY SYSTEMS WITH YEAR 2000 PERFORMANCE STANDARDS We are dependent in part on computer- and date-controlled systems for some internal functions, particularly inventory control, purchasing, customer billing and payroll. Similarly, suppliers of components and services on which we rely, and our customers, may have Year 2000 compliance risks which would affect their operations and their transactions with us. Our review of these third-party compliance risks from our key vendors and customers is not yet complete. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Compliance of Key Systems With Year 2000 Performance Standards." Although we are not aware of any material customer- or vendor-related Year 2000 issues, we can not currently evaluate the magnitude of our exposure. Because of the complexity of these issues and the interdependence of many companies using computer- and date-controlled systems, our assessment of the risks may be incorrect. Additionally, in view of the mixed results achieved by software vendors in correcting these problems, we cannot assure you that new systems we obtain to replace noncompliant systems will themselves prove to be fully compliant. Based on current information, we expect that our costs to remediate and test our systems, and evaluate the risks of our key customers and vendors, will not be material. Our management does not anticipate encountering any significant failures of Year 2000 compliance in our systems, products or supply chain that would materially disrupt our operations. However, we may experience cost overruns and delays as we replace or modify our systems, or address our third-party exposures, which could have a material adverse effect on our consolidated financial position, results of operations or cash flow. We have not yet determined the extent of contingency planning that may be required if we have incorrectly assessed the foregoing Year 2000 risks. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Compliance of Key Systems With Year 2000 Performance Standards." CHANGES TO TECHNOLOGY Some of our products, and some of the systems in which our products are used, may be subject to competition from other technologies, including alternative products or systems that have not been invented or are not currently used on aircraft. 20 POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL If we experience a change of control (of the types defined in the Indenture), you will have the right to require us to repurchase all or any part of your notes at an offer price in cash equal to 101% of their aggregate principal amount, plus accrued and unpaid interest, if any, thereon to the date of repurchase. We cannot assure you that we will have sufficient resources to satisfy our repurchase obligation to every Note holder following a change of control. See "Description of Notes--Repurchase at the Option of Holders--Change of Control." Our bank credit facility prohibits us from purchasing the notes, and makes certain change of control events a default. The terms of any other future senior debt may contain similar restrictions. If a change of control occurs while any senior debt prohibits us from purchasing the notes, we could seek the consent of the senior lenders to the purchase, or attempt to refinance the debt which prohibits it. However, we can not assure you that those attempts would be successful. If they are not, we would still be prohibited from repurchasing the notes. Our failure to do so would result in a default under the Indenture (which would probably also result in a default in the senior debt, and therefore block any payments to you). See "--Subordination of the Notes to Senior Debt; Possible Additional Subordinated Debt" and "Description of Notes." CONTROL OF DECRANE AIRCRAFT BY PRINCIPAL SHAREHOLDERS DeCrane Aircraft is wholly owned by DeCrane Holdings, and all of the outstanding shares of common stock of DeCrane Holdings are held by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds"). (The DLJMB Funds own approximately 94% of the common stock of DeCrane Holdings, on a fully diluted basis assuming exercise of all outstanding warrants.) As a result of their stock ownership, the DLJMB Funds control DeCrane Holdings and DeCrane Aircraft, and have, among other things, the power to elect all of their directors, appoint new management, approve sales of all or substantially all of the assets of the companies, issue additional capital stock, establish stock purchase programs and declare dividends. The general partners of each of the DLJMB Funds are affiliates or employees of Donaldson, Lufkin & Jenrette, Inc. ("DLJ, Inc."). DLJ Capital Funding, Inc., which is an agent and lender under our bank credit facility, DLJ Bridge Finance, Inc., which purchased the original bridge notes refinanced by the old notes, and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), which was the initial purchaser of the old notes, are also affiliates of DLJ, Inc. The interests of those principal shareholders could conflict with your interests as a holder of the notes. Those shareholders may also have an interest in pursuing transactions that they believe enhance the value of their equity investment in DeCrane Aircraft or DeCrane Holdings, even though the transactions involve risks to your investment in the notes. FRAUDULENT TRANSFER STATUTES Federal and state "fraudulent transfer" laws permit certain obligations to be undone or rescinded if certain tests having to do with the obligation, the person's intent and the person's financial condition are satisfied. Our repayment obligations to you under the notes could be impaired by those laws is a court determined that, when entering into or exchanging the notes, either: - we had the actual intent to hinder, delay or defraud current or future creditors, or - we received less than fair consideration or reasonably equivalent value for incurring the debt represented by the notes, AND we were: - insolvent or were rendered insolvent by reason of the issuance of the notes, or 21 - were engaged, or about to engage, in a business or transaction for which our assets were unreasonably small, or - intended to incur, or believed (or should have believed) we would incur, debts beyond our ability to pay as such debts mature. Based on such a finding, a court could avoid all or a portion of our obligations to you, subordinate your right to repayment to our other existing and future senior debt (in which case those other creditors would be paid in full before any payment could be made on the notes), and take other action detrimental to your rights, including invalidating the notes. We cannot assure you that, if that occurred, you would ever recover any repayment on your notes. The definition of insolvency used in the foregoing tests varies among jurisdictions, depending upon the court and the law that is being applied. It is not certain what standard a given court would apply, in determining whether we were insolvent on a particular date, or regarding other grounds that might lead it to take the actions noted above. NO PRIOR PUBLIC MARKET FOR THE NOTES Prior to the registration of the new notes, there was no public market for the notes. In addition, the liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for these notes. 22 RECENT DEVELOPMENTS THE DLJ ACQUISITION In August 1998, DeCrane Holdings and two other holding companies organized by DLJMB and the DLJMB Funds completed a successful tender offer for all shares of our common stock (including options to purchase shares, net of the exercise proceeds) for $23.00 per share, resulting in a net price of approximately $182.0 million. At the completion of the tender offer, the two other holding companies merged with DeCrane Aircraft. All of our old outstanding shares were cancelled, non-tendering shareholders were paid out, and as a result DeCrane Aircraft became a wholly-owned subsidiary of DeCrane Holdings. Prior to the tender offer, one of the merging holding companies entered into a $130.0 million syndicated bank credit facility, with a group of lenders led by DLJ Capital Funding, Inc. That syndicated facility is now our bank credit facility. For its principal terms, see "Description of Bank Credit Facility." The initial borrowings from that facility totalled $80.0 million of term loans and $5.4 million of revolving loans, and were used to fund the purchase of shares in the tender offer, as well as to refinance existing debt of DeCrane Aircraft. That same merging company also issued $100.0 million of senior subordinated increasing rate notes to DLJ Bridge Finance, Inc., before merging into DeCrane Aircraft, making the bridge notes our obligation. The proceeds from those bridge notes were used to fund the tender offer purchases. The bridge notes were refinanced by our initial offering of the old notes in October 1998 to the initial purchaser DLJSC. See "The Initial Offering." DeCrane Holdings raised additional funds for the tender offer purchases, and expenses of the acquisition transactions, by selling all of the shares of its common stock for $65.0 million and all of the shares of its Senior Redeemable Exchangeable Preferred Stock due 2009 ("DeCrane Holdings preferred stock") for $34.0 million. In connection with the latter, DeCrane Holdings also issued to the DLJMB Funds warrants to acquire an additional 5.0% of its common stock on a fully diluted basis (assuming exercise of all of the warrants). The following table sets forth the cash sources and uses of funds for the DLJ acquisition, including the initial offering (completed in October 1998) and related fees and expenses (dollars in thousands): SOURCES Cash from income tax refund (1)................................................ $ 4,368 Proceeds from the exercise of stock options.................................... 4,314 Bank credit facility: Revolving credit facility.................................................... 5,400 Term facility................................................................ 80,000 Units sold in the initial offering............................................. 100,000 DLJMB equity investment........................................................ 99,000 Estimated additional borrowings to fund transaction fees and expenses.......... 2,528 ----------- Total Sources............................................................ $ 295,610 ----------- ----------- USES Purchase price for the shares.................................................. $ 173,116 Purchase of shares from the exercise of stock options.......................... 13,194 Repayment of prior senior credit facility...................................... 93,000 Estimated transaction fees and expenses........................................ 16,300 ----------- Total Uses............................................................... $ 295,610 ----------- -----------
- ------------------------ (1) As of June 30, 1998, DeCrane Aircraft had approximately $4.4 million of income taxes refundable. Since that time, we have received all of this amount and used the cash to reduce our indebtedness. 23 PATS, INC. In January 1999, we acquired 100% of the stock of PATS, Inc. for a purchase price of approximately $41.5 million (including the assumption of debt), subject to adjustments for changes to its net working capital, and reserves for certain environmental and other indemnities made by the selling shareholders. PATS is a designer, manufacturer and installer of auxiliary fuel tanks which significantly extend the flight range of commercial and corporate aircraft. Among other things, PATS is the principal supplier of auxiliary fuel tank systems to the Boeing Business Jet program. See "Business--Products and Services--Auxiliary Fuel Systems." PATS also is a supplier of auxiliary power units which supply ground power to aircraft. USE OF PROCEEDS We are conducting this exchange offer in order to satisfy our obligations under the Registration Rights Agreement entered into at the time of the initial offering of the old notes. We will not receive any cash proceeds from the issuance of the new notes, or the exchanges made by tendering holders of notes. The old notes surrendered in the exchange will be canceled, so our issuance of the new notes will not increase our outstanding debt. The terms of the new notes and the old notes are substantially the same in all material respects, except that the new notes will not be subject to liquidated damages penalties for failure to timely register the notes under the Securities Act, and will be more freely transferable by the holders thereof by reason of their registration thereunder. 24 CAPITALIZATION The following table sets forth the historical cash and cash equivalents and consolidated capitalization of DeCrane Aircraft as of December 31, 1998 and on a pro forma basis. This table should be read in conjunction with DeCrane Aircraft's consolidated financial statements and related notes, the "Unaudited Pro Forma Consolidated Financial Statements" and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in the Prospectus.
AS OF DECEMBER 31, 1998 ------------------------- ACTUAL PRO FORMA(1) ---------- ------------- (DOLLARS IN THOUSANDS) Cash and cash equivalents.............................................................. $ 3,518 $ 6,022 ---------- ------------- ---------- ------------- Total debt: Bank credit facility Term facility...................................................................... $ 79,888 $ 99,888 Revolving credit facility.......................................................... 5,800 23,300 Senior Subordinated Notes due 2008................................................... 100,000 100,000 Other debt........................................................................... 1,077 1,527 ---------- ------------- Total debt............................................................................. 186,765 224,715 Stockholder's equity................................................................... 97,921 97,921 ---------- ------------- Total capitalization................................................................... $ 284,686 $ 322,636 ---------- ------------- ---------- -------------
- ------------------------ (1) Pro forma reflects the additional borrowings required to fund the PATS acquisition. 25 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA BASIS OF PRESENTATION The following unaudited pro forma consolidated financial data of DeCrane Aircraft are based on its historical financial statements adjusted to reflect certain transactions of two types: the "Acquisition Adjustments" and the "Offering Adjustments." The Acquisition Adjustments reflect the 1998 Avtech, Dettmers and DLJ acquisitions and the 1999 PATS acquisition. For additional information on these acquisitions, see the notes to DeCrane Aircraft's consolidated financial statements included elsewhere in this Prospectus. The Offering Adjustments reflect the issuance and sale of units in the initial offering (comprised of the old notes and warrants for the common stock of DeCrane Holdings) and additional revolving credit facility borrowings and the use of the proceeds therefrom to repay the bridge notes, including fees and expenses, as described in the use of proceeds table in "Recent Developments--The DLJ Acquisition." For additional information on the units in the initial offering, see the discussion in the notes to DeCrane Aircraft's consolidated financial statements. An unaudited pro forma consolidated statement of operations is presented for the year ended December 31, 1998. The statement reflects the Acquisition Adjustments and the Offering Adjustments as if they had occurred as of January 1, 1998. The unaudited pro forma consolidated balance sheet reflects the 1999 Acquisition Adjustments as of December 31, 1998; all of the 1998 Acquisition and Offering Adjustment events had occurred by that date and are therefore reflected in historical amounts. The pro forma adjustments are based upon available information and certain assumptions management believes are reasonable under the circumstances. The unaudited pro forma consolidated financial data and accompanying notes should be read in conjunction with the historical financial statements and related notes of DeCrane Aircraft, Avtech and PATS included elsewhere in this Prospectus. The pro forma financial data do not purport to represent what DeCrane Aircraft's actual results of operations or actual financial position would have been if the transactions described above in fact occurred on such dates or to project DeCrane Aircraft's results of operations or financial position for any future period or date. For a discussion of the consequences of the incurrence of indebtedness in connection with the DLJ acquisition, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 26 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1998
DECRANE ACQUISITION ADJUSTMENTS(2) AIRCRAFT --------------------------- HISTORICAL PATS, INC. (SUCCESSOR)(1) HISTORICAL(3) ADJUSTMENTS PRO FORMA -------------- ------------- ----------- --------- (DOLLARS IN THOUSANDS) ASSETS Current assets Cash and cash equivalents.............................................. $ 3,518 $ 2,504 $-- $ 6,022 Accounts receivable, net............................................... 30,441 3,273 -- 33,714 Inventories............................................................ 34,281 11,916 -- 46,197 Deferred income taxes.................................................. 4,300 132 -- 4,432 Prepaid expenses and other current assets.............................. 3,897 58 -- 3,955 -------------- ------------- ----------- --------- Total current assets................................................. 76,437 17,883 -- 94,320 -------------- ------------- ----------- --------- Property and equipment, net.............................................. 28,160 4,855 -- 33,015 -------------- ------------- ----------- --------- Other assets, principally intangibles, net............................... Goodwill and other intangibles......................................... 216,544 -- 27,376(4) 243,920 Deferred financing costs............................................... 8,787 -- 875(5) 9,662 Other assets........................................................... 999 1,399 -- 2,398 -------------- ------------- ----------- --------- Net other assets, principally intangibles............................ 226,330 1,399 28,251 255,980 -------------- ------------- ----------- --------- $330,927 $24,137 $28,251 $383,315 -------------- ------------- ----------- --------- -------------- ------------- ----------- --------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities Short-term borrowings.................................................. $ 283 $-- $-- $ 283 Current portion of long-term obligations............................... 1,529 6,226 (6,226)(6) 1,529 Accounts payable....................................................... 6,383 2,559 -- 8,942 Accrued expenses....................................................... 18,466 5,633 975(7) 25,074 Income taxes payable................................................... 3,743 1,246 -- 4,989 -------------- ------------- ----------- --------- Total current liabilities............................................ 30,404 15,664 (5,251) 40,817 -------------- ------------- ----------- --------- Long-term liabilities Revolving credit facility.............................................. 5,800 -- 17,500(8) 23,300 Term facility.......................................................... 79,000 -- 20,000(8) 99,000 Senior subordinated notes.............................................. 100,000 -- -- 100,000 Other long-term obligations............................................ 153 3,501 (3,051)(6) 603 Deferred income taxes.................................................. 16,990 -- -- 16,990 Other long-term liabilities............................................ 659 -- 4,025(7) 4,684 -------------- ------------- ----------- --------- Total long-term liabilities.......................................... 202,602 3,501 38,474 244,577 -------------- ------------- ----------- --------- Stockholder's equity..................................................... 97,921 4,972 (4,972)(9) 97,921 -------------- ------------- ----------- --------- $330,927 $24,137 $28,251 $383,315 -------------- ------------- ----------- --------- -------------- ------------- ----------- ---------
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data. 27 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 1998
ACQUISITION ADJUSTMENTS --------------------------------------------------- DECRANE AIRCRAFT HISTORICAL COMPANIES ACQUIRED (10) (1) ------------------------------------- --------------------------- AVTECH DETTMERS OFFERING (PREDECESSOR) (SUCCESSOR) CORPORATION INDUSTRIES PATS, INC. ADJUSTMENTS ADJUSTMENTS PRO FORMA ------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- (DOLLARS IN THOUSANDS) Revenues.............. $90,077 $ 60,356 $20,984 $2,013 $ 33,348 $ (133)(11) $-- $206,645 Cost of sales......... 60,101 42,739 13,267 1,454 24,321 (851)(12) -- 141,031 ------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- Gross profit.......... 29,976 17,617 7,717 559 9,027 718 -- 65,614 Selling, general and administrative expenses............ 15,719 10,274 3,695 760 4,906 (1,728)(13) -- 33,626 Nonrecurring acquisition expenses............ 3,632 -- 1,229 -- 250 (5,111)(14) -- -- Nonrecurring bonuses and employment contract termination expenses............ -- -- 3,592 -- 480 (4,072)(15) -- -- ESOP contribution..... -- -- 300 -- 230 (530)(16) -- -- Amortization of intangible assets... 1,347 3,148 -- -- -- 5,923(17) -- 10,418 ------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- Operating income (loss).............. 9,278 4,195 (1,099) (201) 3,161 6,236 -- 21,570 Interest expense (income)............ 2,350 6,852 (60) 13 296 12,918(18) 1,867(21) 24,236 Other expenses (income)............ 847 335 (35) -- -- (600)(19) -- 547 ------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- Income (loss) before provision for income taxes and extraordinary item................ 6,081 (2,992) (1,004) (214) 2,865 (6,082) (1,867) (3,213) Provision for income taxes (benefit)..... 2,892 (2,668) (322) -- 1,013 874(20) (733)(22) 1,056 ------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- Income (loss) before extraordinary item (23)................ $ 3,189 $ (324) $ (682) $ (214) $ 1,852 $ (6,956) $(1,134) $ (4,269) ------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- ------------- ----------- ----------- ---------- ---------- ----------- ----------- --------- OTHER FINANCIAL DATA: EBITDA (24)........... $13,636 $ 13,247 $ (837) $ (197) $ 3,640 $ 11,794 $-- $ 41,283 Depreciation and amortization (25)... 4,358 4,604 262 4 479 5,558 -- 15,265 Capital expenditures........ 1,745 1,813 1,145 4 1,607 -- -- 6,314 Cash interest expense............. 2,378 6,474 -- 13 319 12,033 1,710 22,927
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Data. 28 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (1) As of December 31, 1998, reflects DeCrane Aircraft's financial position subsequent to the DLJ acquisition and the initial offering. For the year ended December 31, 1998, reflects DeCrane Aircraft's historical results of operations for the eight months ended August 31, 1998 (Predecessor) and the four months ended December 31, 1998 (Successor). (2) Reflects DeCrane Aircraft's purchase of all of the outstanding stock of PATS in January 1999. Sources and uses of funds for the acquisition, had it occurred on December 31, 1998, are as follows (dollars in thousands): SOURCES: Senior credit facility borrowings: Term B facility................................................ $ 20,000 Acquisition facility........................................... 16,500 Working capital facility....................................... 1,000 Customer prepayment.............................................. 5,000 --------- Total Sources................................................ $ 42,500 --------- --------- USES: Purchase of common stock......................................... $ 31,212 PATS debt repaid upon acquisition................................ 9,277 Estimated acquisition fees and expenses.......................... 1,136 Credit facility amendment fees and expenses...................... 875 --------- Total Uses................................................... $ 42,500 --------- ---------
(3) Reflects the financial position of PATS as of December 31, 1998. (4) Reflects the excess purchase price of the PATS acquisition over the fair value of net assets acquired. For purposes of the Pro Forma Consolidated Financial Data, we allocated the excess purchase price to goodwill which is being amortized on a straight-line basis over 30 years. Such allocation is preliminary and may change upon the completion of the final valuation of the net assets acquired. (5) Reflects credit facility amendment fees and expenses capitalized as deferred financing costs. (6) Reflects the repayment of PATS' debt upon acquisition. (7) Reflects a customer prepayment for product to be delivered by PATS through 2001 used by DeCrane Aircraft to finance the acquisition. The prepayment will be offset semiannually against future amounts receivable and has a 7.5% effective interest rate. (8) Reflects senior credit facility borrowings for the PATS acquisition. The terms of the senior credit facility are described in the DeCrane Aircraft historical consolidated financial statements and related notes included elsewhere in this Prospectus. (9) Reflects the elimination of PATS' stockholders' equity upon acquisition. (10) Represents the results of operations for the companies acquired for the periods not included in the DeCrane Aircraft Historical columns. The results of operations for the acquired companies are for the periods from January 1, 1998 to: (i) June 25, 1998 for Avtech; (ii) June 29, 1998 for Dettmers; and (iii) December 31, 1998 for PATS. (11) Reflects the elimination of intercompany sales. 29 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (12) Reflects the net change in cost of goods sales attributable to the following (dollars in thousands): Decrease in depreciation expense (a)................................. $ (658) Elimination of intercompany sales.................................... (133) Work force reductions attributable to merging the companies acquired........................................................... (60) --------- Net increase (decrease) in cost of sales............................. $ (851) --------- ---------
- ------------------------ (a) To reflect a decrease in depreciation expense resulting from the fair value and remaining economic useful lives of depreciable assets acquired in connection with the DLJ acquisition. (13) Reflects the net decrease in selling, general and administrative expenses attributable to the following (dollars in thousands): Decrease in compensation expense (a)............................... $ (1,775) Decrease in investor relations expenses (b)........................ (221) Other, net (c)..................................................... 268 --------- Net decrease in selling, general and administrative expenses....... $ (1,728) --------- ---------
- ------------------------ (a) To reflect the resignation of certain former employees and changes to employment agreements for certain remaining employees of the companies acquired. (b) To reflect the decrease in investor relations expenses associated with becoming a privately held company as a result of the DLJ acquisition. (c) To reflect an increase in depreciation expense resulting from the fair value and remaining economic useful lives of depreciable assets acquired in connection with the DLJ acquisition, net of cost savings attributable to employee benefit plans implemented at the companies acquired. (14) Reflects a reduction for nonrecurring charges incurred: (i) by DeCrane Aircraft on behalf of its stockholders related to the DLJ acquisition; and (ii) by Avtech and PATS on behalf of their stockholders related to their respective acquisitions by DeCrane Aircraft. (15) Reflects a reduction in expense attributable to employment contract termination expenses and nonrecurring bonuses awarded prior to, and in anticipation of, the acquisitions of Avtech and PATS by DeCrane Aircraft. (16) Reflects a reduction in expense attributable to the termination of the Employee Stock Ownership Plans in conjunction with the acquisitions of Avtech and PATS. 30 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (17) Reflects a net increase in amortization expense pertaining to the amortization of goodwill and other intangible assets related to the DLJ and PATS acquisitions on a straight-line basis as follows (dollars in thousands):
AMOUNT YEAR ---------- --------- Elimination of Predecessor amortization................................... $ (1,347) DLJ acquisition amortization: Goodwill................................................................ $ 166,674 30 3,704 FAA certifications...................................................... 30,391 15 1,351 Engineering drawings.................................................... 9,138 15 406 Assembled workforce..................................................... 6,588 7 627 Tradenames, trademarks and patents...................................... 3,908 5 to 12 269 PATS acquisition amortization (a) Goodwill................................................................ 27,376 30 913 ----------- Net increase in amortization.......................................... $ 5,923 ----------- -----------
- ------------------------ (a) Amortization expense may change upon completion of the final purchase price allocation (see Note 4). 31 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (18) Reflects the net increase in interest expense, including deferred financing cost amortization and commitment fees, as a result of the following (dollars in thousands):
INTEREST RATE OR TERM AMOUNT EXPENSE --------------------- --------- --------- Elimination of historical net interest expense (a): Pertaining to debt refinanced (b): Interest expense............................................. $ (2,524) Deferred financing cost amortization, commitment fees and expenses................................................... (191) Interest income (c)............................................ 207 Successor net interest expense................................. (6,794) Pro forma interest expense (d): Interest expense: Revolving credit facility: Working capital facility................................... LIBOR (e) +2.75% $ 8,112 630 Acquisition facility....................................... LIBOR (e) +2.75% 16,500 1,282 Term facility: Term A..................................................... LIBOR (e) +2.75% 35,000 2,720 Term B..................................................... LIBOR (e) +3.00% 65,000 5,213 Bridge notes................................................. Prime + (f) 100,000 10,625 Customer prepayment interest................................. 7.50% 5,000 375 Deferred financing cost amortization: Revolving credit facility.................................... 6 years (g) 1,277 213 Term facility: Term A..................................................... 6 years (h) 894 200 Term B..................................................... 7 years (h) 2,025 315 Bridge notes................................................. 7.5 years (g) 3,180 424 Commitment fees and expenses................................... 223 --------- Net increase in interest expense............................. $ 12,918 --------- ---------
- -------------------------- (a) Excludes interest expense pertaining capital lease obligations and other debt obligations not refinanced. (b) Includes DeCrane Aircraft Predecessor debt refinanced in conjunction with the DLJ acquisition and Dettmers debt not acquired and PATS debt refinanced in conjunction with their acquisitions by DeCrane Aircraft. See the notes to the DeCrane Aircraft and PATS consolidated financial statements included elsewhere in this Prospectus for a description of the debt refinanced. (c) Interest income earned from invested surplus cash balances prior to acquisition. (d) Pro forma for the DLJ and PATS acquisitions as if they had occurred on January 1, 1998. (e) Calculations based on LIBOR at 5.02%. (f) Calculations based on Prime at 8.5%, the rate in effect during the period the bridge notes were issued and outstanding, plus 2.125%. (g) Deferred financing costs are amortized on a straight-line basis over the term of the agreement. (h) Deferred financing costs are amortized using the effective interest method. (19) Reflects adjustment for nonrecurring charges associated with a terminated debt offering in June 1998. Such offering was terminated upon initiation of the DLJ acquisition. (20) Represents an increase in the provision for income taxes as a result of a change in pro forma taxable income and elimination of the $2.6 million one time benefit caused by reversal of DeCrane Aircraft's 32 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA deferred tax valuation allowance. The effective tax rate differs from the U.S. federal statutory rate due to goodwill amortization related to acquisitions not deductible for income tax purposes. (21) Reflects the net increase in interest expense, including deferred financing cost amortization and commitment fees, as a result of the initial offering as follows (dollars in thousands):
INTEREST RATE OR TERM AMOUNT EXPENSE --------------------- --------- --------- Elimination of bridge notes interest expense: Interest expense.............................................. Prime + (a) $ 100,000 $ (10,625) Deferred financing cost amortization.......................... 7.5 years (b) 3,180 (424) Senior subordinated notes due 2008: Interest expense.............................................. 12.00% 100,000 12,000 Deferred financing cost amortization (c)...................... 10 years (d) 5,810 581 Revolving credit facility: Interest expense.............................................. LIBOR (e) + 2.75% 4,610 358 Commitment fees and expenses.................................. (23) --------- Net increase in interest expense.............................. $ 1,867 --------- ---------
- -------------------------- (a) Calculations based on Prime at 8.50%, the rate in effect during the period the bridge notes were issued and outstanding, plus 2.125%. (b) Deferred financing costs are amortized on a straight-line basis over the term of the agreement. (c) Includes $1.2 million for the value ascribed to the warrants issued by DeCrane Holdings in conjunction with the sale of the units in the initial offering. (d) Deferred financing costs are amortized using the effective interest method. (e) Calculations based on LIBOR at 5.02%. (22) Represents a decrease in the provision for income taxes as a result of a decrease in pro forma taxable income. (23) In conjunction with the DLJ acquisition, deferred financing costs of $347,000, net of income tax benefit, were written off as an extraordinary charge as a result of the termination of DeCrane Aircraft's prior senior credit facility. In conjunction with the initial offering, deferred financing costs of $1.9 million, net of income tax benefit, were written off as an extraordinary charge as a result of the termination of the bridge notes. These amounts have not been reflected in the unaudited pro forma consolidated statement of operations. (24) EBITDA equals operating income plus depreciation, amortization and non-cash acquisition related charges to reflect cost of sales based on the fair value of inventory acquired in connection with the DLJ acquisition. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of DeCrane Aircraft's operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard measure of liquidity commonly reported and widely used by analysts, investors and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method and the EBITDA numbers set forth above may not be comparable to EBITDA reported by other companies. (25) Reflects depreciation and amortization of plant and equipment, goodwill and other intangible assets. Excludes amortization of deferred financing costs and debt discounts which is classified as a component of interest expense. 33 SELECTED CONSOLIDATED FINANCIAL DATA The following table presents historical consolidated financial data of DeCrane Aircraft as of and for each of the four years in the period ended December 31, 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998 derived from the audited financial statements. The information in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and DeCrane Aircraft's consolidated financial statements and related notes included elsewhere in this Prospectus.
(PREDECESSOR) ----------------------------------------------------------- EIGHT MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------------------- AUGUST 31, 1994 1995 1996(1) 1997(2) 1998(3) --------- --------- ----------- --------- ------------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues....................................................... $ 47,092 $ 55,839 $ 65,099 $ 108,903 $ 90,077 Cost of sales(5)............................................... 36,407 43,463 49,392 80,247 60,101 --------- --------- ----------- --------- ------------- Gross profit................................................... 10,685 12,376 15,707 28,656 29,976 Selling, general and administrative expenses................... 7,716 9,426 10,747 15,756 15,719 Nonrecurring charges(6)........................................ -- -- -- -- 3,632 Amortization of intangible assets.............................. 1,209 1,115 709 905 1,347 --------- --------- ----------- --------- ------------- Operating income............................................... 1,760 1,835 4,251 11,995 9,278 Interest expense............................................... 3,244 3,821 4,248 3,154 2,350 Terminated debt offering expenses.............................. -- -- -- -- 600 Other expenses, net............................................ 332 382 108 243 247 --------- --------- ----------- --------- ------------- Income (loss) before provision for income taxes and extraordinary item........................................... (1,816) (2,368) (105) 8,598 6,081 Provision for income taxes (benefit)(7)........................ 613 1,078 712 3,344 2,892 --------- --------- ----------- --------- ------------- Income (loss) before extraordinary item........................ (2,429) (3,446) (817) 5,254 3,189 Extraordinary loss from debt refinancing(8).................... (264) -- -- (2,078) -- --------- --------- ----------- --------- ------------- Net income (loss).............................................. $ (2,693) $ (3,446) $ (817) $ 3,176 $ 3,189 --------- --------- ----------- --------- ------------- --------- --------- ----------- --------- ------------- OTHER FINANCIAL DATA: Cash flows from operating activities........................... $ (2,322) $ 1,457 $ 2,958 $ 4,641 $ 3,014 Cash flows from investing activities........................... (993) (1,462) (24,016) (27,809) (87,378) Cash flows from financing activities........................... 3,028 41 21,051 22,957 89,871 EBITDA(9)...................................................... 5,196 5,471 7,602 16,915 13,636 EBITDA margin.................................................. 11.0% 9.8% 11.7% 15.5% 15.1% Depreciation and amortization(10).............................. $ 3,436 $ 3,636 $ 3,351 $ 4,920 $ 4,358 Capital expenditures(11)....................................... 1,016 1,203 5,821 3,842 1,745 Ratio of earnings to fixed charges(12)......................... -- -- 1.0x 3.3x 3.0x OTHER OPERATING DATA: Bookings(13)................................................... $ 47,896 $ 50,785 $ 81,914 $ 112,082 $ 94,439 Backlog at end of period(14)................................... 24,493 19,761 44,433 49,005 84,184 (SUCCESSOR) ------------- FOUR MONTHS ENDED DECEMBER 31, 1998(4) ------------- STATEMENT OF OPERATIONS DATA: Revenues....................................................... $ 60,356 Cost of sales(5)............................................... 42,739 ------------- Gross profit................................................... 17,617 Selling, general and administrative expenses................... 10,274 Nonrecurring charges(6)........................................ -- Amortization of intangible assets.............................. 3,148 ------------- Operating income............................................... 4,195 Interest expense............................................... 6,852 Terminated debt offering expenses.............................. -- Other expenses, net............................................ 335 ------------- Income (loss) before provision for income taxes and extraordinary item........................................... (2,992) Provision for income taxes (benefit)(7)........................ (2,668) ------------- Income (loss) before extraordinary item........................ (324) Extraordinary loss from debt refinancing(8).................... (2,229) ------------- Net income (loss).............................................. $ (2,553) ------------- ------------- OTHER FINANCIAL DATA: Cash flows from operating activities........................... $ 1,008 Cash flows from investing activities........................... (1,813) Cash flows from financing activities........................... (1,597) EBITDA(9)...................................................... 13,247 EBITDA margin.................................................. 21.9% Depreciation and amortization(10).............................. $ 4,604 Capital expenditures(11)....................................... 1,813 Ratio of earnings to fixed charges(12)......................... -- OTHER OPERATING DATA: Bookings(13)................................................... $ 54,021 Backlog at end of period(14)................................... 75,388
34
AS OF DECEMBER 31, ------------------------------------------------------- (PREDECESSOR) (SUCCESSOR) ------------------------------------------ ----------- 1994 1995 1996(1) 1997(2) 1998(15) --------- --------- --------- --------- ----------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents...................... $ 236 $ 305 $ 320 $ 206 $ 3,518 Working capital................................ 11,459 12,583 10,486 24,772 46,033 Total assets................................... 37,685 36,329 69,266 99,137 330,927 Total debt(16)................................. 23,874 24,672 42,250 38,838 186,765 Mandatorily redeemable preferred stock and common stock warrants........................ 2,329 1,633 6,879 -- -- Stockholders' equity (deficit)................. 766 (1,697) 1,236 39,527 97,921
- ------------------------ (1) Includes the effect of the acquisition of the remaining 25% minority interest in Cory Components beginning February 20, 1996, the date on which the transaction occurred, and the results of Aerospace Display Systems and Elsinore beginning September 18, 1996 and December 5, 1996, respectively, the dates on which they were acquired. (2) Includes the effect of the acquisition of Audio International beginning November 14, 1997, the date on which it was acquired. (3) Includes the results of operations of Avtech and Dettmers beginning June 26, 1998 and June 30, 1998, respectively, the dates on which they were acquired. (4) Reflects the results of operations subsequent to the DLJ acquisition (Successor). (5) Includes $4.4 million of non-cash charges for the four months ended December 31, 1998 to reflect cost of sales based on the fair value of inventory acquired in connection with the DLJ acquisition. (6) Represents non-capitalizable transaction costs associated with the DLJ acquisition. (7) Prior to the acquisition of the remaining 25% minority interest in Cory Components in 1996, DeCrane Aircraft did not consolidate the earnings of Cory Components for tax purposes. As such, despite a consolidated pre-tax loss in each of the years, DeCrane Aircraft recorded a provision for income taxes from 1993 up to the date of the acquisition in 1996 which primarily relates to Cory Components. For the four months ended December 31, 1998, includes a $2.6 million benefit from the reduction of the deferred tax valuation allowance. (8) Represents: (i) the write-offs of unamortized deferred financing costs, unamortized original issue discounts and a prepayment penalty incurred as a result of the refinancing by DeCrane Aircraft of a substantial portion of our debt in November 1994; (ii) the write-offs, net of an income tax benefit, of deferred financing costs, unamortized original issue discounts, a prepayment penalty and other related expenses incurred as a result of the repayment of debt by DeCrane Aircraft with the net proceeds from its initial public offering in April 1997; and (iii) the write-offs, net of an income tax benefit, of deferred financing costs as a result of the repayment of DeCrane Aircraft's existing indebtedness in connection with the DLJ acquisition and the refinancing of the bridge notes during the four months ended December 31, 1998. (9) EBITDA equals operating income plus depreciation, amortization and non-cash acquisition related charges described in Note 5 above. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to income from operations or net income computed in accordance with generally accepted accounting principles, as an indicator of DeCrane Aircraft's operating performance, as an alternative to cash flow from operating activities or as a measure of liquidity. DeCrane Aircraft believes that EBITDA is a standard measure of 35 liquidity commonly reported and widely used by analysts, investors and other interested parties in the financial markets. However, not all companies calculate EBITDA using the same method and the EBITDA numbers set forth above may not be comparable to EBITDA reported by other companies. (10) Reflects depreciation and amortization of plant and equipment and goodwill and other intangible assets. Excludes amortization of deferred financing costs and debt discounts which are classified as a component of interest expense. (11) Includes $4.4 million for the year ended December 31, 1996 related to the acquisition of a manufacturing facility. See "Business--Acquisition History." (12) For purposes of calculating the earnings to fixed charges ratio, earnings represent net income before income taxes, minority interests in the income of majority-owned subsidiaries, cumulative effect of an accounting change, extraordinary items and fixed charges. Fixed charges consist of: (i) interest, whether expensed or capitalized; (ii) amortization of debt expense and discount or premium relating to any indebtedness, whether expensed or capitalized; and (iii) one-third of rental expenses under operating leases considered to represent interest cost (such one-third portion is deemed by DeCrane Aircraft to be a reasonable approximation of the interest portion of such expense). There was a deficiency of earnings to cover fixed charges for the years ended December 31, 1994 and 1995 and the four months ended December 31, 1998 of $1.8 million, $2.3 million and $2.9 million, respectively. (13) Bookings represent the total invoice value of purchase orders received during the period. See "Business--Backlog." (14) Orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date during the year will be materially affected by the timing of DeCrane Aircraft's receipt of orders and the speed with which those orders are filled. See "Business-- Backlog." (15) Reflects the financial position of Avtech and Dettmers and the DLJ acquisition. (16) Total debt is defined as long-term debt, including current portion, and short-term borrowings. 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSIONS SHOULD BE READ IN CONJUNCTION WITH CONSOLIDATED FINANCIAL STATEMENTS OF DECRANE AIRCRAFT AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Our results of operations have been affected by our history of acquisitions. Since our formation in 1989, we have completed twelve acquisitions of businesses or assets, the most recent of which, PATS, was acquired in January 1999. As a result, our historical financial statements do not reflect the results of all of our current businesses. Our principal strategy is to establish and expand leading positions in high-margin niches within the commercial, regional, corporate and military aircraft markets, with a focus on the manufacturing of avionics components and the integration of avionics systems. We also seek to maintain a balance of revenues among the OEM market, the retrofit market and the aftermarket. We believe that such a strategy will reduce the cyclical risk in the aircraft industry. THE DLJ ACQUISITION AND FINANCING In July 1998, DeCrane Holdings, an affiliate of DLJ Merchant Banking Partners II, L.P. formed a finance subsidiary and an acquisition subsidiary. The acquisition subsidiary conducted a successful tender for our shares and, when the tender offer was completed, merged with DeCrane Aircraft. To finance the purchase of shares in the tender offer and to refinance existing debt, the finance subsidiary entered into a $130.0 million syndicated bank credit facility with a group of lenders led by DLJ Capital Funding, Inc., issued $100.0 million of senior subordinated increasing rate bridge notes to DLJ Bridge Finance Inc. and received an equity contribution of approximately $99.0 million from the sale of preferred and common stock and DLJMB Warrants by DeCrane Holdings. The bank credit facility and the bridge notes became our obligations when the finance subsidiary was also merged into DeCrane Aircraft. When the two mergers were completed in August, 1998, DeCrane Aircraft became a wholly owned subsidiary of DeCrane Holdings. The bridge notes were refinanced by the sale of the old notes in October, 1998. The gross purchase price for DeCrane Aircraft's shares and options was $186.3 million. Assets acquired and liabilities assumed have been recorded at their estimated fair values based on an independent appraisal. The purchase price was allocated to the assets acquired based on their estimated fair values as follows: (i) $4.4 million to inventory; (ii) $2.6 million to fixed assets; and (iii) $50.0 million to certain identifiable intangible assets. The excess of the purchase price over the fair value of the net assets acquired totalling $70.0 million was allocated to goodwill. The inventory step-up was expensed as the goods were sold during the four months ended December 31, 1998. The intangible assets, other than goodwill, are being amortized on a straight-line basis over periods between five and fifteen years. Goodwill is being amortized on a straight-line basis over a period of thirty years. The term loan facility under our bank credit facility consists of a $35.0 million amortizing loan maturing in six years (the "Term A loan") and a $65.0 million amortizing loan maturing in seven years (the "Term B loan"), which was increased from $45.0 to $65.0 million at the time of the PATS acquisition. An amount of $112,500 was amortized in 1998. Scheduled aggregate amortization is $1,087,500 in 1999. The bank credit facility also includes a $25.0 million working capital revolving credit facility and a $25.0 million acquisition revolving credit facility, of which $5.4 million was drawn upon completion of the DLJ acquisition. Both revolving credit facilities will terminate after six years. See "Description of Bank Credit Facility." Borrowings under our bank credit facility, generally bear interest based on a margin over, at DeCrane Aircraft's option, the base rate or the Euro-Dollar rate. The applicable margin is 1.50% for 37 base rate borrowings and 2.75% for Euro-Dollar borrowings for the first six months following the January 1999 amendment (other than the Term B loan, which has a margin of 1.75% for base rate borrowings and 3.00% for Euro-Dollar borrowings). After the first six months, the applicable margin will vary based upon DeCrane Aircraft's ratio of total debt to EBITDA (as defined). DeCrane Aircraft's obligations under the bank credit facility are guaranteed by DeCrane Holdings and all existing and future wholly-owned domestic subsidiaries of DeCrane Aircraft (the "subsidiary guarantors") and are secured by substantially all of the assets of DeCrane Aircraft and the subsidiary guarantors, including a pledge of the capital stock of all existing and future subsidiaries of DeCrane Aircraft (provided that no more than 65% of the voting stock of any foreign subsidiary shall be pledged) and a pledge by DeCrane Holdings of the stock of DeCrane Aircraft. The bank credit facility contains customary covenants and events of default. The notes (including the old notes, and the new notes to be exchanged for old notes in this exchange offer) will mature in 2008 and are guaranteed by DeCrane Aircraft's wholly-owned domestic subsidiaries. Interest on the notes is payable semiannually in cash. The notes contain customary covenants and events of default, including covenants that limit DeCrane Aircraft's ability to incur debt, pay dividends and make certain investments. In connection with the DLJ acquisition, DeCrane Holdings raised approximately $99.0 million through its sale of common stock, DeCrane Holdings preferred stock and DLJMB Warrants to the DLJMB Funds. The proceeds of those sales were contributed to DeCrane Aircraft. The DeCrane Holdings preferred stock provides for cumulative dividends that do not require payment in cash through 2003, but will be payable in cash thereafter and will be mandatorily redeemable in 2009. The DeCrane Holdings preferred stock is exchangeable into debentures that will contain customary covenants and events of default, including covenants that limit the ability of DeCrane Holdings and its subsidiaries to incur debt, pay dividends and make certain investments. RESULTS OF OPERATIONS The following table sets forth the items in our consolidated statements of operations as percentages of its revenues for the periods indicated. The percentages for the years ended December 31, 1996 and 1997 reflect the historical results of operations prior to the DLJ acquisition (Predecessor). The percentages for the year ended December 31, 1998 reflects the combined historical results of operations for the eight months ended August 31, 1998 prior to the DLJ acquisition (Predecessor) and the four months ended December 31, 1998 subsequent to the DLJ acquisition (Successor).
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1997 1998 --------- --------- --------- Revenues............................................................................. 100.0% 100.0% 100.0% Cost of sales........................................................................ 75.9 73.7 68.4 --------- --------- --------- Gross profit......................................................................... 24.1 26.3 31.6 Selling, general and administrative expenses......................................... 16.5 14.5 19.7 Amortization of intangible assets.................................................... 1.1 0.8 3.0 --------- --------- --------- Operating income..................................................................... 6.5 11.0 8.9 Interest expense..................................................................... 6.5 2.9 6.1 Other expense, net................................................................... 0.2 0.2 0.8 --------- --------- --------- Income (loss) before provision for income taxes, and extraordinary item............................................................. (0.2) 7.9 2.0 Provision for income taxes........................................................... (1.1) (3.1) (0.1) --------- --------- --------- Income (loss) before extraordinary item.............................................. (1.3) 4.8 1.9 Extraordinary loss from debt refinancing............................................. -- (1.9) (1.5) --------- --------- --------- Net income (loss).................................................................... (1.3)% 2.9% 0.4% --------- --------- --------- --------- --------- ---------
38 YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 REVENUES. Revenues increased $41.6 million, or 38.2%, to $150.5 million for the year ended December 31, 1998 from $108.9 million for the year ended December 31, 1997. Revenues increased primarily due to the inclusion of $20.2 million of revenues from Audio International, which was acquired on November 14, 1997, the inclusion of $25.2 million of revenues from Avtech Corporation, which was acquired on June 26, 1998, and the inclusion of $3.3 million of revenues from Dettmers Industries, Inc., which was acquired on June 30, 1998. These revenue increases were somewhat offset by continued softness in the Company's electrical contact markets, where we experienced a sales decline of approximately $8.6 million for the year ended December 31, 1998 compared with the same period last year. GROSS PROFIT. Gross profit increased $18.9 million, or 65.9%, to $47.6 million for the year ended December 31, 1998 from $28.7 million for the year ended December 31, 1997. Gross profit as a percent of revenues increased to 31.6% for the year ended December 31, 1998 from 26.3% for the year ended December 31, 1997. The improvement in gross profit was attributable to increased overall sales volume, particularly from recently acquired companies, which have generally higher gross margins. The improvements in gross profit and gross margin were somewhat offset by the decline in revenues from electrical contact sales and the expensing during the period of the fair market value step-up to inventory associated with the DLJ acquisition. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative (referred to as SG&A herein) expenses increased $13.8 million, or 87.3%, to $29.6 million for the year ended December 31, 1998 from $15.8 million for the year ended December 31, 1997. SG&A expenses as a percent of revenues increased to 19.7% for the year ended December 31, 1998 from 14.5% for the year ended December 31, 1997. SG&A expenses increased primarily due to the inclusion of SG&A expenses from Audio, Avtech and Dettmers, the non-capitalizable transaction costs associated with the DLJ acquisition, and the increase in research and development costs related to new product introductions at Audio and Dettmers. OPERATING INCOME. Operating income increased $1.5 million to $13.5 million for the year ended December 31, 1998 from $12.0 million for the year ended December 31, 1997. Operating income as a percent of revenues decreased to 8.9% for year ended December 31, 1998 from 11.0% for the year ended December 31, 1997. The increases in operating income during the first eight months of 1998, and from the addition of Avtech and Dettmers, were more than offset by the higher amortization expenses associated with those acquisitions as well as the DLJ acquisition. INTEREST EXPENSE. Interest expense increased $6.0 million, or 187.5%, to $9.2 million for the year ended December 31, 1998 from $3.2 million for the year ended December 31, 1997. This increase resulted primarily from the higher debt levels associated with the DLJ acquisition. PROVISION FOR INCOME TAXES. During the year ended December 31, 1998 we decreased our provision for income taxes by $3.2 million to $0.2 million from $3.4 million for the year ended December 31, 1997, as a result of lower income before taxes and the reduction of our deferred tax asset valuation allowance by $2.6 million. This decrease was significantly offset by an increase in non-deductible expenses, particularly the amortization of intangible assets, during the same period. We have approximately $17.4 million and $0.6 million in loss carry forwards available at December 31, 1998 for federal and state income tax purposes. EXTRAORDINARY LOSSES FROM DEBT REFINANCING. During the year ended December 31, 1998, we incurred a $2.2 million extraordinary charge, net of an estimated $1.5 million income tax benefit, as a result of the refinancing of the bridge notes with a units offering consisting of notes and warrants. During the year ended December 31, 1997, we incurred a $2.1 million extraordinary charge, net of an estimated 39 $1.4 million income tax benefit, as a result of a debt refinancing with the proceeds from our initial public offering. NET INCOME (LOSS). Net income decreased $2.6 million to $0.6 million for the year ended December 31, 1998 compared to $3.2 million for the same period in 1997 primarily due to the higher amortization, interest and other expenses associated with the DLJ acquisition. BOOKINGS AND BACKLOG. Bookings increased $36.4 million, or 32.5%, to $148.5 million for the year ended December 31, 1998 compared to $112.1 million for the same period in 1997. The increase in bookings for 1998 includes $21.0 million attributable to Audio, $15.4 million attributable to Avtech and $2.9 million attributable to Dettmers. As of December 31, 1998, we had a sales order backlog of $75.4 million compared to $49.0 million as of December 31, 1997. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 REVENUES. Revenues increased $43.8 million, or 67.3%, to $108.9 million for 1997 from $65.1 million for 1996. Revenues increased primarily due to the inclusion of $10.7 million of revenues from Aerospace Display Systems, growth in our private labeling programs of $6.4 million, growth in contact sales of $6.3 million driven by new aircraft production rate increases, an increase in sales of harness assemblies for in-flight entertainment systems of $5.1 million, an increase in sales of specialty connectors for cabin management and in-flight entertainment systems principally on Boeing's 777 aircraft of $4.9 million, an increase of sales to IFT of $3.3 million relating to a major systems integration program for Swissair, the inclusion of $3.0 million of revenue from Elsinore, new systems integration programs for navigational systems of $1.5 million, the inclusion of $1.3 million of revenue from Audio International, a new systems integration program for United Parcel Service of $0.9 million, and the overall growth in the commercial aircraft market. Partially offsetting this increase was a decline in sales to AT&T Wireless Services, Inc. of $3.8 million, reflecting the completion in late 1995 and early 1996 of a major systems integration program. GROSS PROFIT. Gross profit increased $12.9 million, or 82.4%, to $28.7 million for 1997 from $15.7 million for 1996. Gross profit as a percentage of revenues increased to 26.3% for 1997 from 24.1% for 1996. This increase in profit margin was attributable to an increased sales volume, favorable mix, savings from the rationalization of certain newly purchased manufacturing assets purchased from AMP, Inc. with our existing facilities in El Segundo, California and Lugano, Switzerland, sustained price increases and lower material costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $5.0 million, or 46.6%, to $15.8 million for 1997 from $10.7 million for 1996. SG&A expenses as a percentage of revenues decreased to 14.5% for 1997 from 16.5% for 1996. SG&A expenses increased primarily due to the addition of staff to pursue higher sales to OEMs and to develop capabilities for in-flight entertainment, navigation and satellite communication and safety systems integration services, the inclusion of SG&A expenses from Aerospace Display Systems, the AMP facility and Elsinore, all of which were acquired in late 1996, and the inclusion of SG&A expenses from Audio International, which was acquired in 1997. OPERATING INCOME. Operating income increased $7.7 million, or 182.2%, to $12.0 million for 1997 from $4.3 million for 1996. Operating income as a percentage of revenues increased to 11.0% for 1997 from 6.5% for 1996. The increase in operating income resulted from the factors described above. INTEREST EXPENSE. Interest expense decreased $1.1 million, or 25.8%, to $3.2 million for 1997 from $4.2 million for 1996. The decrease resulted from the completion of the initial public offering on April 16, 1997 and the repayment of a substantial portion of debt with the net proceeds. PROVISION FOR INCOME TAXES. During 1997, we reduced our deferred tax asset valuation allowance by $0.5 million to reflect the book benefit of federal and state net operating loss carry forwards not 40 previously recognized. We have approximately $2.5 million of net operating loss carry forwards available at December 31, 1997 for federal income tax purposes. EXTRAORDINARY LOSS FROM DEBT REFINANCING. During 1997, we incurred a $2.1 million extraordinary charge, net of an estimated $1.4 million income tax benefit, as a result of refinancing debt with the net proceeds from the initial public offering. NET INCOME (LOSS). Net income increased $4.0 million to $3.2 million for 1997 from a net loss of $0.8 million for 1996. The increase is a result of the factors described above. LIQUIDITY AND CAPITAL RESOURCES We have required cash primarily to fund acquisitions and, to a lesser extent, to fund capital expenditures and for working capital. Our principal sources of liquidity have been cash flow from operations and third party borrowings. Cash increased $3.3 million during 1998. For the year ended December 31, 1998, we generated positive cash flow from operating activities of $4.0 million. Our accounts receivable consist of trade receivables and unbilled receivables, which are recognized pursuant to the percentage of completion method of accounting for long-term contracts. Accounts receivable increased $6.6 million for the year ended December 31, 1998 from higher overall sales. Unbilled receivables comprised $3.5 million of this increase. Inventories decreased $2.2 million for the year ended December 31, 1998, due to improved inventory management at several subsidiaries as well as the sale of certain contact product lines and the disposal of certain obsolete inventory items. Accounts payable decreased $2.9 million for the year ended December 31, 1998 as a result of payment of various assumed transaction expenses in the acquisitions of 1998 and an agreement with a new gold supplier for significantly lower prices in exchange for shorter payment terms. Accrued expenses, however, increased $5.9 million for the year ended December 31, 1998, primarily as a result of significant interest accruals. Net cash used in investing activities was $89.2 million during the year ended December 31, 1998. Of this amount, $83.6 million was used for the Avtech acquisition and $2.2 million for the Dettmers acquisition (both net of cash acquired). The total purchase price for the Dettmers acquisition also included additional contingent consideration with a maximum of $2.0 million payable between 1999 and 2002. We spent $3.6 million on capital expenditures during the year ended December 31, 1998, which was lower than $4.5 million originally anticipated because the actual cash outlays for our information systems upgrade program were delayed until 1999. The bank credit facility contains certain restrictions on our ability to make capital expenditures; however, we believe the permitted capital expenditures will be sufficient to complete our investment program and maintain our facilities. Net cash provided by financing activities was $88.3 million for the year ended December 31, 1998. In connection with the DLJ acquisition, we entered into a new bank credit facility that initially provided for term loan borrowings in the aggregate principal amount of $80.0 million, now increased to $99.9 million, and revolving loan borrowings up to an aggregate principal amount of $50.0 million, including $25.0 million for working capital purposes which expires in 2004 (See Note 10 to the consolidated financial statements included elsewhere in this Prospectus). In 1998, prior to the DLJ acquisition, we also completed a follow-on common stock offering and used the $34.8 million of net proceeds to reduce amount outstanding under our credit facility, and borrowed $85.8 million under our then-existing senior credit facility to finance the Avtech and Dettmers acquisitions. The DLJ acquisition created substantial debt for us, resulting in significant debt service obligations. Although we cannot be certain, we anticipate that operating cash flow, together with borrowings under the bank credit facility, will be sufficient to meet our future operating expenses, working capital, capital expenditures and debt service obligations. However, our ability to pay principal or interest, to refinance our debt and to satisfy our other debt obligations will depend on our future operating performance. We 41 will be affected by economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. In addition, we are continually considering acquisitions that complement or expand our existing businesses or that may enable us to expand into new markets. Future acquisitions may require additional debt, equity financing or both. We may not be able to obtain any additional financing on acceptable terms. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. It also requires that gains or losses resulting from changes in the values of those derivatives be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Adoption of SFAS No. 133 is required for the fiscal year beginning January 1, 2000. Management believes the adoption of SFAS No. 133 will not have a material impact on our consolidated financial position or results of operations. SWISS FRANC FORWARD EXCHANGE CONTRACTS Certain of the contact blanks we use in the production of our contacts are manufactured at our Swiss facility and shipped to our El Segundo, California facility for plating and assembly. In 1996, 1997 and 1998, solely in an effort to mitigate the effects of currency fluctuations between the U.S. Dollar and the Swiss Franc, we entered into forward exchange contracts at fixed rates. We plan to continue efforts to mitigate this risk in the future. We do not engage in any currency exchange transactions for trading or speculative purposes. Realized and unrealized gains and losses on foreign exchange contracts are recognized currently in the consolidated statements of operations. COMPLIANCE OF KEY SYSTEMS WITH YEAR 2000 PERFORMANCE STANDARDS We are dependent in part on computer- and date-controlled systems for some internal functions, particularly inventory control, purchasing, customer billing and payroll. In 1996, we performed an evaluation of all of our information systems to determine if the existing hardware and software would meet our long-term requirements. Because of numerous acquisitions made over the past several years, we operate several stand-alone systems using different, and in some cases internally customized, software. We concluded that some of our existing software should be upgraded to newer, off-the-shelf, integrated manufacturing and business application software which is also Year 2000 compliant. We believe the migration to the new integrated software will be completed prior to January 1, 2000. Similarly, suppliers of components and services on which we rely, and our customers, may have Year 2000 compliance risks which would affect their operations and their transactions with us. We are developing plans for mitigating the impact of the Year 2000 problem from key vendors and customers, a process which we began on a company-wide basis in the fourth quarter of 1998. Although we are not aware of any material customer or vendor related Year 2000 issues, we cannot currently evaluate the magnitude of our exposure. Our review of these third-party compliance risks from our key vendors and customers is not yet complete. Because of the complexity of these issues and the interdependence of many companies using computer- and date-controlled systems, our assessment of the risks may be incorrect. Additionally, in view of the mixed results achieved by software vendors in correcting these problems, we cannot assure you that new systems we obtain to replace noncompliant systems will themselves prove to be fully compliant. We believe that the majority of our computer-controlled systems were put into service during the last five years and that these systems are Year 2000 compliant. We believe the number of products manufactured and sold by us whose functioning is dependent upon computer-controlled systems is not 42 significant. We intend to review our Year 2000 exposure from internal computer-controlled systems and manufactured products again prior to the third quarter of 1999. Based on current information, we expect that our costs to remediate and test our systems, and evaluate the risks of our key customers and vendors, will not be material. Costs incurred to date in addressing the Year 2000 issue have not been significant and are being funded through operating cash flows. Our management does not anticipate encountering any significant failures of Year 2000 compliance in our systems, products or supply chain that would materially disrupt our operations. However, we may experience cost overruns and delays as we replace or modify our systems, or address newly-discovered third-party exposures, which could have a material adverse effect on our consolidated financial position, results of operations or cash flow. We cannot assure you that our assessment of the foregoing risks from our own systems and products, or those of our customers or vendors, is or will be correct. We have not yet determined the extent of contingency planning that may be required if we have incorrectly assessed the foregoing Year 2000 risks. COMMON EUROPEAN CURRENCY The Treaty on European Economic and Monetary Union provides for the introduction of a single European currency, the Euro, in substitution for the national currencies of the member states of the European Union that adopt the Euro. In May 1998, the European Council determined the 11 member states that met the requirement for the Monetary Union and the currency exchange rates among the currencies for the member states joining the Monetary Union. The transitory period for the Monetary Union started on January 1, 1999. According to the European Council Resolution of July 7, 1997, the transition will be made in three steps: (i) a transitory period from January 1, 1999 to December 31, 2001, in which currency accounts may be opened and financial statements may be drawn in Euros, and local currencies and Euro will coexist; (ii) from January 1, 2002 to June 30, 2002, in which local currencies will be exchanged for Euros; and (iii) July 1, 2002, when local currencies will disappear. Although there can be no assurance that a single European currency will be adopted or, if adopted, on what time schedule and with what success, substantial transitional costs could result as we redesign our software systems to reflect the adoption of the new currency. In addition, we do not know whether the adoption of the Euro will affect the enforceability, or the denomination of payment obligations under, our commercial agreements in currencies to be replaced by the Euro. 43 BUSINESS We manufacture avionics and related components, and provide systems integration services, for niche markets within the commercial, regional, corporate and military aircraft industries. We believe that we are a leading provider of components within each niche market we serve. Since DeCrane Aircraft was founded in 1989, our strategy has been to combine complementary businesses with leading positions in cabin and flight deck systems. We generated revenues of $206.6 million for the twelve months ended December 31, 1998, and Adjusted EBITDA of $44.5 million for the same period, on a pro forma basis. We seek to maximize our sales by emphasizing the complementary nature of our products and services. We manufacture: - electrical contacts; - connectors (which often include our contacts); - wire harness assemblies (which often include our connectors); - structural supports for avionic connectors and harnesses (often packaged with other products of ours and sold as "installation kits"); - auxiliary fuel tank systems and auxiliary power systems; - dichroic liquid crystal display ("LCD") devices, which are often used with flight deck avionics; - cockpit audio and communications, lighting, and power and control devices for commercial aircraft; and - stereo systems, video monitors, passenger switches, cabin lighting, seating and climate controls for the high-end corporate aircraft market. Our systems integration services include design and engineering of avionics systems, supplemental type certifications on behalf of the Federal Aviation Administration, the assembly of installation kits for systems to be installed ("kitting"), and installation services. Smoke detection, fire suppression and in-flight entertainment systems for jet aircraft are among the systems for which we supply design, certification, assembly and/or installation services. We manufacture many of the components required to complete a systems integration project. We believe that our combination of these component manufacturing and integration capabilities gives us a critical competitive advantage, which would be difficult for competitors to duplicate. By successfully combining and growing complementary businesses, we have achieved strong revenue growth. From 1994 to 1998, our revenues increased from $47.1 million to $150.5 million on a historical basis. That increase resulted in a compound annual growth rate of 33.7%. During the same period, our EBITDA increased from $5.2 million to $26.9 million on a historical basis, representing a combined annual growth rate of 50.8%. We have acheived this growth primarily by: - obtaining new customers and additional business from existing customers; - selectively acquiring complementary avionics businesses, generally with high margins; - taking advantage of favorable trends in the aerospace industry (discussed below); - initiating cost reduction programs and productivity improvements; and - increasing the revenues of acquired businesses, by refocusing or diversifying their strategies and products. Since 1990, we have completed twelve acquisitions, most recently PATS, Inc. in January 1999. 44 INDUSTRY OVERVIEW AND TRENDS We sell to the commercial, regional, corporate and military aircraft markets. Within these markets, our customers include original equipment manufacturers ("OEMs") of aircraft and avionics equipment, aircraft repair and modification centers, and airlines. The Boeing Company and Airbus Industrie are the primary OEMs of commercial aircraft designed to carry 100 or more passengers. There is a slightly larger group of leading OEMs of regional and corporate aircraft (fewer than 100 passengers), including Bombardier, Dassault and Gulfstream and soon to include the Boeing Business Jet and the Airbus A319 corporate jet. The major systems installed on new aircraft, such as flight deck avionics systems, are produced by a limited number of OEMs, including AlliedSignal, Rockwell Collins, General Electric, Honeywell, Raytheon and Sextant Avionique. The aircraft component retrofit market (the integration of new systems into existing aircraft) and the aircraft component aftermarket (the manufacture and sale of replacement products for existing aircraft) are served by a highly fragmented group of companies, including many of the OEMs and a number of smaller, specialized companies like our operating subsidiaries. We market our commercial aircraft products directly to the aircraft OEMs as well as to the major systems OEMs. In some cases, we sell our products to competing manufacturers--so our competitors ultimately may sell some of our products. The aviation industry has been consolidating at an increasing pace in recent years, and we expect that consolidation will continue for the foreseeable future. We believe that there are many barriers to entry which limit access to the aircraft industry, including: - the reluctance of OEMs to add new companies as approved vendors on the engineering drawings of the OEMs (a favored status called "print position"); - the general FAA certification requirements necessary to perform aircraft modifications or maintenance; - the required compliance with FAA aircraft manufacturing and aircraft modification design and installation standards; - the required compliance with military specifications for some products sold to military and commercial markets; - the required compliance with qualification and approval standards imposed by aircraft and avionics systems OEMs; and - the significant initial capital investment and tooling requirements necessary for the manufacture of some aircraft components and systems. We believe the following trends are affecting the commercial, regional and corporate aircraft industry: INCREASED DEMAND FOR NEW COMMERCIAL AIRCRAFT. The 1998 CURRENT MARKET OUTLOOK released by Boeing in early 1998 (the "1998 Boeing Report") projects that the world jetliner fleet will grow from 12,300 aircraft at the end of 1997 to nearly 17,700 aircraft in 2007 and to 26,200 aircraft by 2017. The report also estimates that, over the next 20 years, the industry will require 17,650 new aircraft, both to support the projected world fleet expansion and to replace capacity lost as aircraft are removed from commercial airline service. We believe that every commercial aircraft model currently produced by Boeing and Airbus contains components manufactured by us. Boeing has, however, recently announced production cutbacks in several of its lines for 1999 and 2000. Boeing continues to re-evaluate its production schedules in response to instability in its Asian markets, and to assess the profitability of its various product lines. See "Risk Factors--Instability of Asian Market" and "Risk Factors--Dependence on Key Customers." 45 INCREASED DEMAND FOR NEW REGIONAL AIRCRAFT. We believe that the total commercial regional aircraft fleet will grow over the next ten years. The 1998 Boeing Report projects that worldwide revenue passenger kilometers (called "RPKs") will increase at a compound annual growth rate of 5.0% over that period. We believe that this increase will drive demand for regional aircraft production as well, due to: - the introduction of new regional aircraft with state-of-the-art cockpits and the same safety equipment as larger commercial aircraft; - continued integration of the services of regional carriers with major carriers; - newer longer-range turboprop and jet aircraft that allow regional carriers to consider new point-to-point routes, which would permit passengers to bypass hubs; and - upgraded airport facilities for regional passengers. INCREASED DEMAND FOR NEW CORPORATE AIRCRAFT. We believe that the following factors will drive increased demand for new corporate aircraft: - the introduction of new, larger and more efficient aircraft; - the growing popularity of fractional aircraft ownership; - the minimal availability of used aircraft; - the need for long range flights to expanding international markets; and - the increased demand for more expedient travel. INCREASED DEMAND FOR CABIN AND FLIGHT DECK SYSTEMS. In recent years, demand for cabin systems has increased. These systems include in-flight passenger telecommunications systems and in-flight entertainment systems, such as video, video-on-demand and other interactive systems. We believe that demand for avionics systems on the flight deck, as well as in the passenger cabin, is increasing, as a result of: - a desire by airlines for additional revenue-producing services; - longer flights combined with a demand by airline passengers for more sophisticated forms of in-flight services; and - the advent of new technologies and FAA mandates related to aircraft safety and navigation. INDUSTRY CONSOLIDATION-REDUCTION IN NUMBER OF APPROVED SUPPLIERS AND VENDORS. To reduce purchasing costs and have greater control over quality, OEMs and aircraft operators have been reducing the number of vendors and suppliers from whom they purchase. Suppliers and vendors must now possess the size and production and distribution capabilities required to provide a broader range of products and services to airlines and OEMs. NEW SAFETY REQUIREMENTS. New technologies and FAA mandates are driving a proliferation of new safety systems for airplanes. The world's airlines, aircraft and avionics OEMs have cooperated with regulatory agencies in the development of industry standards, regulations and system requirements for future air navigation systems (the "FANS" initiative). We expect that this initiative will drive a complete modernization of both airborne and ground-based air traffic management systems. As navigation technology becomes more accurate, new navigation systems such as Global Positioning Systems ("GPS"), may become federally required. Other new technologies which have already been mandated include Traffic Collision Avoidance Systems ("TCAS"), cargo hold fire detection and suppression systems, and windshear detection systems. In anticipation of new FAA recommendations and mandates, many airlines have already begun to install enhanced ground proximity warning systems, predictive 46 windshear detection systems and enhanced digital flight data recorders. Each of these systems presents aircraft avionics retrofit opportunities for us. DOWNSIZING AND OUTSOURCING. Airlines have come under increasing pressure to reduce the operating and capital costs associated with providing services. In response, airlines have increased purchases of some components from third parties and have outsourced some repair, overhaul and retrofit functions. Similarly, aircraft and avionics OEMs increasingly are reducing their level of vertical integration by outsourcing more manufacturing, repair and retrofit functions to third parties. We believe that these trends are creating increased demand for low-cost, high-quality component manufacturers and systems integrators. ACQUISITION HISTORY DeCrane Aircraft was formed in 1989 to capitalize on emerging trends in the aircraft market through acquisitions. Since its formation, we have completed twelve acquisitions, summarized as follows:
YEAR OF PRINCIPAL PRODUCTS AND SERVICES COMPLETION ACQUIRED ENTITY OR ASSET AT THE TIME OF THE TRANSACTION - ------------- ------------------------------------------------- ------------------------------------------------- 1990 Hollingsead International Avionics support structures 1991 Tri-Star Electronics International Contacts and connectors 1991 Tri-Star Europe, S.A. Contact blanks 1991 Tri-Star Technologies Wire marking equipment 1991 Cory Components Connectors & harness assemblies 1996 Aerospace Display Systems Dichroic LCD devices 1996 Elsinore Engineering Engineering services 1996 AMP manufacturing facility Contact blanks 1997 Audio International Cabin management & entertainment products 1998 Avtech Corporation Cockpit audio, lighting, power & control 1998 Dettmers Industries Corporate aircraft seats 1999 PATS Auxiliary fuel & power systems
COMPETITIVE STRENGTHS We believe that we are well-positioned to take advantage of the foregoing trends and expected growth, as a result of the following competitive strengths: LEADING POSITIONS IN NICHE MARKETS. We have established strong positions in several specialized niches within the commercial aircraft industry. We believe that we are: - the largest supplier of bulk contacts to commercial aircraft original equipment manufacturers ("OEMs"); - the largest supplier of dichroic LCD devices for use by commercial aircraft OEMs; - the largest provider of aircraft entertainment and cabin management products and systems for the high-end corporate aircraft market; - a major supplier of wire harness assemblies for use in in-flight entertainment systems; and - a leading supplier of cockpit audio controls. We have used our strong market positions to compete more effectively as well as to capitalize on industry consolidation trends. 47 DIVERSIFIED REVENUE BASE. We sell to the commercial, regional, corporate and military aircraft markets. Within these markets, our customers include OEMs of aircraft and avionics equipment, aircraft repair and modification centers, and airlines. Each of these markets typically experience different production cycles. We believe that our involvement in multiple markets, reduces our exposure to cyclical product demand in the aircraft industry. Additionally, as a primary supplier of products and services to manufacturers of cabin and flight deck systems, we believe we have opportunities for growth that are independent of the aircraft OEM market. Such systems typically are installed on a retrofit basis by purchasers and operators of existing aircraft, rather than by aircraft OEMs. COMPLEMENTARY AND STRATEGICALLY INTEGRATED BUSINESS LINES. Since DeCrane Aircraft was formed in 1989, we have completed twelve acquisitions of businesses and assets. We have successfully executed our strategy of acquiring complementary businesses in the cabin and flight deck markets. Our acquisitions complement each other, and create a core of avionics products and services which increases our cross-selling opportunities. For example, our acquisitions of Dettmers, a corporate aircraft seat manufacturer, and Audio, which makes custom aircraft entertainment and cabin management products, will enable us to offer a more integrated set of products and services to the high-end corporate aircraft market. STRONG CUSTOMER RELATIONSHIPS. We seek to establish and maintain long-term relationships with leaders in our primary markets. For example, we have entered into requirements contracts to supply bulk contacts and specific connectors to Boeing, which is the largest commercial aircraft OEM. Through these and other similar agreements, we believe that we are: - the supplier of a substantial majority of the bulk contacts for all aircraft currently manufactured by Boeing; - the sole source supplier of certain connectors for in-flight entertainment systems installed by Boeing on its 777 aircraft; - the primary supplier of cockpit audio control systems to Boeing; and - the primary supplier of auxiliary fuel systems to the Boeing Business Jet program. We are also a preferred supplier of wire harness assemblies to Matsushita for its in-flight entertainment systems. LOW-COST, HIGH-QUALITY OPERATIONS. We believe that we have established low-cost operations through cost reduction programs, technological development and, where appropriate, the use of vertical integration. Our low-cost operations are demonstrated, for example, by the growth of programs under which we supply contacts to many of our competitors. We use sophisticated processes to ensure that our products meet or exceed industry and customer quality requirements. Many customers formally have recognized the effectiveness of our quality programs by issuing quality approval letters, awarding quality compliance certificates and authorizing our inspection personnel to act as their authorized quality certification representatives. For example, four of our facilities have received Boeing's D1-9000 Advanced Quality System award, and nine of our facilities are currently ISO-9001 or ISO-9002 certified. REGULATORY CERTIFICATIONS. We employ FAA-certified airframe and power-plant mechanics who are authorized to perform specified aircraft modification functions. This level of expertise enables us to respond rapidly and effectively to our customers' technical requirements. As of February 1, 1999, our subsidiaries: - include one of only 31 currently active Designated Air Stations worldwide which are authorized by the FAA to provide approval and certification of the design of specific aircraft modifications on behalf of the FAA; 48 - hold numerous Parts Manufacturer Approval authorizations from the FAA, permitting them to manufacture and sell various parts in many different types of aircraft; and - hold eight FAA domestic repair station certificates, authorizing them to perform specific aircraft modifications. GROWTH STRATEGY Our principal strategy is to establish and expand leading positions in high-margin, niche markets within the commercial, regional, corporate and military aircraft markets. We focus on the manufacture of avionics components and the integration of avionics systems. We also seek to maintain a balance of revenues among the OEM market, the retrofit market and the aftermarket. We believe that such a strategy will position us to grow by: CAPITALIZING ON GROWTH IN AIRCRAFT PRODUCTION AND INCREASED DEMAND FOR CABIN AND FLIGHT DECK SYSTEMS. Our strong market positions, and alignment with many of the leading participants in the industry, should permit us to take advantage of the projected increases in the production of aircraft discussed above. For example, in-flight entertainment systems have become more sophisticated in recent years with the inclusion of such products as video-on-demand and in-seat VCRs. Increasingly, airlines view sophisticated in-flight entertainment systems as a required service on airlines long-haul flights, particularly in first class. Such systems are also increasingly being installed in business and coach class and on planes serving shorter routes. We believe that the trend toward jets instead of turboprops in the corporate and regional markets will further increase our dollar content per aircraft, as well as the demand for our products and services in that market. We believe that this increased demand creates a significant retrofit and aftermarket opportunity for cabin avionics systems, as well as the components and systems integration services necessary to such systems. We work closely with OEMs and modification centers to meet their delivery and scheduling requirements, and, in some cases, to provide total, turnkey solutions to adding avionics systems new aircraft. EXPANDING SYSTEMS INTEGRATION SERVICES. Our systems integration services began in the in-flight passenger telecommunications market. Beginning in 1995, we expanded our systems integration expertise and sales efforts to include navigation and satellite communication, safety, and in-flight entertainment systems. We believe that we are one of the few companies having in-house capabilities in each of the four elements of systems integration (design, certification, kitting and system installation). EMPHASIZING INTEGRATED PRODUCT SYSTEMS AND COMPLEMENTARY SERVICES. Over the past several years, we increasingly have combined our manufactured components to create higher value-added products. This activity has created additional opportunities to cross-sell and vertically integrate our products. For example, our contact business provides components to our connector business, which supplies components to our wire harness business. Our harness assemblies often are packaged with its avionics support structures to form the foundation as the installation kits which we then sell to our systems integration customers. We believe that these complementary products and services provide opportunities to increase our sales to existing customers and compete more effectively for new customers. COMPLETING ADDITIONAL STRATEGIC ACQUISITIONS. We operate in a fragmented market, which we estimated to include over 100 companies with revenues of less than $100 million in 1997. We target for acquisition aircraft component manufacturers and systems integration providers that are complementary to our existing businesses, and have a leading market share in their own niches. We seek to leverage our existing strengths, and add new expertise, through acquisitions that offer strategic value and cross-selling opportunities. We regard economies of scale, product line extensions, new customer relationships, increased manufacturing capacity and opportunities for increased cost reductions as particularly important in our analysis of a potential acquisition's strategic value. We are continually 49 engaged in discussions with potential acquisition candidates. However, acquisitions involve many uncertainties, and our attempts to identify appropriate acquisitions, and complete and finance any particular acquisition, may not be successful. PRODUCTS AND SERVICES We believe that our products are used in each of the commercial aircraft models currently produced by Boeing (including McDonnell Douglas models) and Airbus, the two largest commercial aircraft OEMs. Our seven principal classes of products and services are:
SHARE OF 1998 SALES ON A PRO FORMA CLASS BASIS ----------------------------- ------------------- - cockpit audio, About 22% communications, lighting and power and control devices - electrical contacts About 17% - auxiliary fuel systems and About 16% auxiliary power units - connectors and harness About 15% assemblies - integration of cabin and About 11% flight deck systems - entertainment and cabin About 10% management products - dichroic LCD devices About 7%
No other product or service accounted for more than 5% of our pro forma revenues in 1998. COCKPIT AUDIO, COMMUNICATION, LIGHTING AND POWER AND CONTROL DEVICES. We are a leading manufacturer of cockpit audio, lighting and power and control devices used in commercial, regional and corporate aircraft. We believe we are the primary supplier of cockpit audio control systems to Boeing, and a leading supplier of power conversion and fluorescent lamp ballast devices and dimmers to corporate aircraft OEMs. We also manufacture a variety of other commercial aircraft safety system components, including warning tone generators, temperature and de-icing monitoring systems, steep approach monitors and low voltage power supplies for TCAS. ELECTRICAL CONTACTS. Contacts conduct electronic signals or electricity and are installed at the terminus of a wire or an electronic or electrical device. We supply precision-machined contacts for use in connectors found in virtually every electronic and electrical system on a commercial aircraft. We sell contacts directly to aircraft and avionics OEMs and, through our private labeling programs, to several major connector manufacturers who sell connectors to the same markets under their brand name. We believe that we are the supplier of a substantial majority of the bulk contact requirements for all aircraft currently manufactured by Boeing, and the largest supplier of bulk contacts to the commercial aircraft OEMs. AUXILIARY FUEL SYSTEMS AND AUXILIARY POWER UNITS. Through our newest subsidiary, PATS, we manufacture and install auxiliary fuel tanks for commercial and corporate aircraft. Our unique design and tank construction have made us a leader in the auxiliary fuel tank market. We have a contract with Boeing's Business Jet program ("BBJ") to supply 120 aircraft with multiple auxiliary fuel tanks. In connection with our acquisition of PATS, Boeing agreed to make certain modifications to the contract and to pre-pay $5.0 million against future deliveries of the systems. We believe that the auxiliary fuel tanks will permit the BBJ 737-700 to compete with long-range aircraft such as the Gulfstream G-V and 50 Bombardier's Global Express. We also manufacture auxiliary power units which provide ground power to aircraft. CONNECTORS AND HARNESS ASSEMBLIES. Electronic and electrical connectors link wires and devices in avionics systems, and permit their assembly, installation, repair and removal. Our connectors are specially manufactured to meet the critical performance requirements demanded by OEMs and required in the harsh environment of an operating aircraft. We produce connectors that are used in aircraft galleys, flight decks and control panels in the passenger cabin. We are the sole-source supplier of several specific connectors for in-flight entertainment systems installed by Boeing on its 777 aircraft. We also produce wire harness assemblies for use in cabin avionics systems, from wire, connectors, contacts and hardware. We typically sell our harness assemblies to avionics OEMs. In addition, we incorporate and sell our harness assemblies as part of our systems integration services. We are a primary supplier of harness assemblies to Matsushita, one of the largest manufacturers of in-flight entertainment systems. INTEGRATION OF CABIN AND FLIGHT DECK SYSTEMS. We have designed, patented and produced a wide range of avionics support structures. These structures are used to support and environmentally cool avionics equipment, including navigation, communication and flight control equipment. Our avionics support structures are sold under the Box-Mount-TM- name, which we believe is highly respected in the marketplace. We sell these support structures to aircraft and avionics OEMs, airlines and major modification centers. In addition, these products are essential components of the installation kits used in our systems integration operations. We also perform all of the functions, including design, engineering, certification, manufacturing & installation, necessary to retrofit an aircraft with a new or upgraded avionics system. ENTERTAINMENT AND CABIN MANAGEMENT. We are a leading supplier of aircraft entertainment and cabin management products and systems to the high-end corporate aircraft market. We supply switching and control modules, audio and video components, stereo systems, video monitors, amplifiers, chimes and paging devices, headphone systems, passenger switches, and cabin lighting and climate controls. We also offer systems integration services for cabin management electronics to corporate aircraft OEMs and major modification centers. DICHROIC LCD DEVICES. We believe we are a leading manufacturer of dichroic LCDs and modules used in commercial and military aircraft. (Modules are LCDs packaged with a backlight source and direct-drive electronics.) We believe we are a primary supplier of these devices to aircraft and avionics OEMs and the U.S. military. Our products are used in a variety of flight deck applications, such as flight control systems, fuel quantity indicators, airborne communications and safety systems. Dichroic LCD products are widely used in the aircraft industry because they are easily adapted to custom design, and they possess high performance characteristics, which include high readability in sunlight and darkness, readability from extreme viewing angles, and the ability to withstand wide temperature fluctuations. We also manufacture electronic clocks which use our dichroic LCD devices. We believe that we are the only clock manufacturer which has designed a line of clocks capable of serving all types of aircraft. 51 INDUSTRY REGULATION The aviation industry is highly regulated in the U.S. by the FAA, and in other countries by similar agencies to ensure that aviation products and services meet stringent safety and performance standards. We and our customers are subject to these regulations. In addition, many customers impose their own compliance and quality requirements on their suppliers. The FAA prescribes standards and licensing requirements for aircraft components, issues Designated Air Station ("DAS") authorizations, and licenses private repair stations. Our subsidiaries hold various FAA approvals, which may only be used by the subsidiary obtaining such approval. The FAA can authorize or deny authorization of many of the services and products we provide. Any such denial would preclude our ability to provide the pertinent service or product. If we failed to comply with applicable FAA standards or regulations, the FAA could exercise a wide range of remedies, including a warning letter, a civil penalty action, and suspension or revocation of a certificate or approval. In July of 1997, the FAA notified us that our FAA-approved repair station which holds DAS authorization did not fully comply with some of the requirements for some of the FAA ratings that it held. The FAA granted us until September 10, 1997 to bring the facility into full compliance, and curtailed several operations of the repair station (including prohibiting initiation of new DAS projects) until it achieved full compliance. On August 28, 1997 the FAA inspected the repair station and determined that it was in full compliance with all FAA requirements applicable to Class III and Class IV Airframe ratings. The FAA issued a revised Air Agency Certificate including those ratings, and removed the operating restrictions, as of September 5, 1997. The FAA also has the power to issue cease and desist orders and orders of compliance and to initiate court action for injunctive relief. In most (nonemergency) cases, we would be permitted to continue making the products and delivering the goods pending any available appeals, but would be required to stop if the FAA eventually prevailed on appeal. If the FAA were to suspend or revoke our certificates or approvals on an emergency basis, we would be obliged to stop the manufacturing of products and delivering of services that require such certificate or approval. If the FAA determines that noncompliance with its standards creates a safety hazard, it can also order that the pertinent component or aircraft immediately cease to be operated until the condition is corrected. This could require that customers ground aircraft, or remove affected components from aircraft currently in service, both of which are expensive actions. Each type of aircraft operated by airlines in the United States must receive an FAA type certificate ("TC"), generally held by the OEM, indicating that the type design meets applicable airworthiness standards. When someone else develops a major modification to an aircraft already type-certificated, that person must obtain an FAA-issued Supplemental Type Certificate ("STC") for the modification. Historically, we have obtained several hundred STCs, most of which we obtained on behalf of our customers as part of our systems integration services. Some of the STCs we obtain are or will eventually be transferred to our customers. As of February 1, 1999, we own and/or manage slightly over 200 STCs. Many of these are multi-aircraft certificates which apply to all of the aircraft of a single type. We foresee the need to obtain additional STCs so that we can expand the services we provide and the customers we serve. STCs can be issued to proposed aircraft modifications, directly by the FAA, or on behalf of the FAA by one of the 31 holders of currently active DAS authorizations (as of February 1, 1999). The FAA designates what types of STC can be issued by each DAS holder. Our subsidiary Elsinore, as one of the 31, can directly issue many of the STCs we and our customers require for our systems integration operations. In many cases, this has increased the speed with which we can obtain STCs and help bring our customers' systems to market. After obtaining an STC, a manufacturer must apply for a Parts Manufacturer Approval ("PMA") from the FAA, or a supplement to an existing PMA, which permits the holder to manufacture and sell 52 installation kits according to the approved design and data package. We have six PMAs, and multiple supplements to each of our PMAs. In general, each initial PMA is an approval of a manufacturing or modification facility's production quality control system. Each supplement authorizes the manufacture of a particular part in accordance with the requirements of the corresponding STC. We routinely apply for and receive PMA supplements. In order to perform the actual installations of a modification, we are also required to have FAA approval. This authority either is specified in our PMAs and supplements, or in our repair station certificates. In order for a company to perform most kinds of repair, engineering, installation or other services on aircraft, its facility must be designated as an FAA-authorized repair station. As of February 1, 1999, we had eight authorized repair stations. In addition to its approval of design, production, and installation, the FAA certifies personnel. Several of our engineering personnel have been certified by the FAA to perform specific tasks related to the design, production, and performance of aircraft modifications. Such certified personnel include mechanics and repairmen. The FAA also delegates some of its oversight responsibilities, such as testing and inspection responsibilities, to FAA-certified Designated Engineering Representatives ("DERs"). We employ several DERs who evaluate engineering design data packages, ensure compliance with applicable FAA regulations, oversee product testing to ensure airworthiness, and work with the FAA to obtain approvals of those data packages. U. S. military specification ("mil-spec") standards are frequently used by both military and commercial customers in the aircraft industry to define and control characteristics of a product. Through the use of a government Qualified Parts List ("QPL") and Qualified Vendor's List ("QVL"), a customer may be assured that a product or service has met all of the requirements set forth in the mil-specs. Parts listed with a QPL allow others to reliably design parts to interface with such parts as a result of the mil-spec standards used. We believe that we hold more QPLs for our contact product line than any other manufacturer. SALES AND MARKETING Product line managers and our product engineering staff provide technical sales support for our direct sales personnel and agents. We may also assign responsibility for marketing, sales and/or services for certain key customers to one of our senior executives. We have nine authorized distributors who purchase, stock and resell several of our product lines. Our systems integration services are sold by sales managers on our staff who are assigned to geographic territories. Because of the significant amount of technical engineering work required in the sales process, our sales managers are generally assisted by a support team of program management, installation and engineering personnel. Each support team specializes in safety systems, in-flight entertainment, or navigation systems. These support teams continue to manage the project throughout the entire integration process. CUSTOMERS We estimate that in 1998, we sold our products and services to about 1,300 customers. Our primary customers include aircraft and avionics OEMs, airlines, aircraft component manufacturers and distributors, and aircraft repair and modification companies. In 1998, on a pro forma basis, our two largest customers were Boeing (including McDonnell Douglas) and Matsushita. Boeing accounted for approximately 29.6%, and Matsushita for approximately 5.0%, of our 1998 consolidated pro forma revenues. In addition, a significant portion of our sales of components also are sold to Boeing indirectly through our sales to suppliers of Boeing. Historically, our systems integration operations have been affected by the timing and magnitude of program awards, at times resulting in quarterly and yearly fluctuations in revenue and earnings. We believe that we have reduced our exposure to such fluctuations by developing capabilities in multiple specialties such as safety systems, in-flight entertainment systems and navigation systems. We have 53 secured orders for integration services in each of these targeted areas. The timing and magnitude of program awards for systems integration services may make other customers significant sources of nonrecurring income in a single year. However, we believe that we will continue to be able to significantly offset such year-to-year fluctuations with new contracts. Most of our sales to Boeing are pursuant to contracts which may be terminated by Boeing at any time, and include various terms favorable to the buyer. For example, one provides that we must extend to Boeing any reductions in prices or lead times that we provide to other customers; and that we must match other suppliers' price reductions of more than five percent, or else delete the affected products from the contract. Another contract relieves Boeing from any obligation to order products covered by the contract if Boeing's customers request an alternate supplier, or our product is not technologically competitive in Boeing's judgment, or Boeing changes the design of an aircraft so that our products are no longer needed, or Boeing reasonably determines that we cannot meet its requirements in the amounts and within the schedules it requires. Our contracts with Boeing also generally grant Boeing an irrevocable non-exclusive worldwide license to use our intellectual property rights (such as designs, trade secrets and tooling) related to products sold to Boeing, if we default, or suffer a bankruptcy filing, or transfer our manufacturing rights to a third party. We generally sell components and services to Matsushita pursuant to purchase orders. However, we do have one supply agreement with Matsushita for connectors, through September 1999. MANUFACTURING AND QUALITY CONTROL Many of our product lines use process-specific equipment and procedures that have been custom-designed or fabricated to provide high-quality products at relatively low cost. Some of our key product lines are vertically integrated, which we believe improves our product performance, customer service and competitive pricing. We have conducted programs to reduce costs including overhead expenses. In some cases these programs have involved the use of proprietary equipment or processes which have enabled us to reduce costs without reducing quality levels. Several of our key customers have developed their own design, product performance, manufacturing process and quality system standards and require us (and other suppliers) to comply with such standards. As a result, we have developed and conducted comprehensive quality policies and procedures which meet or exceed our customers' requirements. Many of our customers have recognized formally the effectiveness of our quality programs by issuing quality approval letters and awarding quality compliance certificates. In addition, some of our customers have authorized our inspection personnel also to act as their authorized quality representatives. That authorization enables us to ship directly into the inventory stockrooms of these customers, eliminating the need for inspection at the receiving end. We use sophisticated equipment and procedures to ensure the quality of our products and to comply with mil-specs and FAA certification requirements. We perform a variety of testing procedures, including environmental testing under different temperature, humidity and altitude levels, shock and vibration testing and X-ray fluorescent measurement. These procedures, together with other customer approved techniques for document, process and quality control, are used throughout our manufacturing facilities. RAW MATERIALS AND COMPONENT PARTS The components we manufacture require the use of various raw materials including gold, aluminum, copper, rhodium, plating chemicals and plastics. The availability and prices of these materials may fluctuate. Their price is a significant component in, and part of, the sales price of many of our products. Although some of our contracts have prices tied to raw materials prices, we cannot always recover increases in raw materials prices in our product sale prices. We also purchase a variety 54 of manufactured component parts from various suppliers. Raw materials and component parts are generally available from multiple suppliers at competitive prices. However, any delay in our ability to obtain necessary raw materials and component parts may affect our ability to meet customer production needs. INTELLECTUAL PROPERTY AND PROPRIETARY INFORMATION We have various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights which we believe are important to our business in the aggregate (but not individually). COMPETITION We compete with a number of established companies that have significantly greater financial, technological, manufacturing and marketing resources than ours. We believe that our ability to compete depends on high product performance, short lead-time and timely delivery, competitive price, and superior customer service and support. The niche markets within the aircraft industry that we serve are relatively fragmented, with several competitors for each of the products and services we provide. Due to the global nature of the aircraft industry, competition in these categories comes from both U.S. and foreign companies. However, we know of no single competitor that offers the same range of products and services as those we provide. 55 Our principal competitors in contacts and connectors are large and diversified corporations which produce a broad range of products. In other areas we generally face a group of smaller companies and enterprises.
CLASS OF PRODUCT PRINCIPAL COMPETITORS - --------------------------------------------------- --------------------------------------------------- - cockpit audio, - Becker Avionics, Inc. communications, lighting and power - Crane ELDEC Corp. and control devices - Diehl GmbH & Co. - Gables Engineering Inc. - Page Aerospace, Inc. - electrical contacts - Amphenol Corporation - Deutsch Engineered Connecting Devices (a division of Deutsch Co.) - ITT Cannon (a division of ITT Industries, Inc.) - auxiliary fuel systems and auxiliary power units - Marshall Engineering - connectors - AMP, Inc. - ITT Cannon - Radiall S.A. - entertainment and cabin management products - Aerospace Lighting Corporation - Baker Electronics - DPI Labs - Grimes Aerospace Company - Nellcor Puritan Bennett Inc. - Pacific Systems Corporation - integration of cabin and flight deck avionics - Electronic Cable Specialists ("ECS") systems - Engineering departments of airlines - Numerous independent airframe maintenance and modification companies - dichroic LCD devices - Cristalloid, Inc.
BACKLOG As of December 31, 1998, we had an aggregate sales order backlog of $115.1 million compared to $113.2 million as of December 31, 1997, all on a pro forma basis. Orders are generally subject to cancellation by the customer prior to shipment. The level of unfilled orders at any given date will be materially affected by when we receive orders and how fast we fill them. Period-to-period comparisons of backlog figures may not be meaningful. For that reason, our backlogs do not necessarily accurately predict actual shipments or sales for any future period. EMPLOYEES As of December 31, 1998, we had 1,451 employees (including 44 temporary employees), of whom 206 were in engineering (including 4 temporary employees), 68 were in sales, 1,040 were in manufacturing operations (including 36 temporary employees) and 137 were in finance and administration (including 4 temporary employees). None of our employees are subject to a collective bargaining agreement, and we have not experienced any material business interruption as a result of labor disputes since DeCrane Aircraft was formed. We believe that we have a good relationship with our employees. 56 FACILITIES We lease most of our principal facilities, as described in the following table.
APPROX. LEASE LOCATION DESCRIPTION SQ. FT. EXPIRATION - ----------------------------------------------- ------------------------------------------- --------- ----------- Georgetown, DE................................. Manufacturing facility 85,000 2041 El Segundo, CA................................. Manufacturing and engineering facility 81,300 2005 Columbia, MD................................... Manufacturing facility and offices 65,923 2007 Garden Grove, CA............................... Manufacturing and engineering facility 58,300 2004 Stuart, FL..................................... Manufacturing facility and offices 29,700 2008 Lugano, Switzerland............................ Manufacturing facility 28,000 2003 Hatfield, PA................................... Manufacturing and engineering facility 27,500 2002 Lugano, Switzerland............................ Manufacturing facility 21,000 2001 Irvine, CA..................................... Manufacturing facility 16,400 1999 Seattle, WA.................................... Storage facility 10,000 2001 Wiltshire, United Kingdom...................... Manufacturing facility 5,700 2013 El Segundo, CA................................. Executive offices 5,000 2004 Santa Barbara, CA.............................. Engineering facility 3,500 2000 Seattle, WA.................................... Engineering facility 3,200 1999 Santa Ana, CA.................................. Engineering facility 1,300 1999
We also have a leased manufacturing facility of approximately 52,000 square feet in Santa Fe Springs, CA, which expires in 2000, and that we have leased in part to several subtenants. Additionally, we own a manufacturing and engineering facility comprised of six buildings having an aggregate of 87,382 square feet in Seattle, Washington (and additional leased rental office and vacant space nearby, comprising another 34,229 square feet), and an 18,000 square foot manufacturing and engineering facility in North Little Rock, Arkansas. We believe that our properties are in good condition and are adequate to support our operations for the foreseeable future. ENVIRONMENTAL MATTERS Our facilities and operations are subject to various federal, state, local, and foreign environmental requirements, including those relating to discharges to air, water, and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances. In addition, some environmental laws, such as the federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), similar state laws, impose strict liability upon persons responsible for releases or potential releases of hazardous substances. That liability generally is retroactive, and may be separately asserted (as "joint and several" liability) against multiple parties who have some relationship to a site or a source of waste. We have sent waste to treatment, storage, or disposal facilities that have been designated as National Priority List sites under CERCLA or equivalent listings under state laws. We have received CERCLA requests for information or allegations of potential responsibility from the Environmental Protection Agency regarding our use of several of those sites. In addition, some of our operations are located on properties which are contaminated to varying degrees. We have not incurred, nor do we expect to incur liabilities in any significant amount as a result of the foregoing matters, because in these cases other entities have been held primarily responsible, the levels of contamination are sufficiently low so as not to require remediation, or we are indemnified against such costs. In most cases, we do not believe that we have any material liability for past waste disposal. However, in a few cases, we do not have sufficient information to assess our potential liability, if any. It is possible, given the retroactive nature of CERCLA liability, that we will from time to time receive additional notices of potential liability, relating to current or former activities. 57 Some of our manufacturing processes create wastewater which requires chemical treatment, and one of our facilities has been cited for failure to adequately treat that water. The costs associated with remedying that failure have been immaterial. See "--Legal Proceedings." Another facility, which has not been cited, discovered volatile organic compounds during groundwater sampling in 1998, and has entered a voluntary cleanup program. We are indemnified for an amount in excess of the estimated costs of the program. We have been and are in substantial compliance with environmental requirements. We believe that we have no liabilities under environmental requirements, except for liabilities which would we do not expect would likely have a material adverse effect on our business, results of operations or financial condition. However, some risk of environmental liability is inherent in the nature of our business, and we might in the future incur material costs to meet current or more stringent compliance, cleanup, or other obligations pursuant to environmental requirements. See "Risk Factors--Environmental Risks and Regulations" and "Business--Legal Proceedings." LEGAL PROCEEDINGS Our manufacturing facility in El Segundo, California, has received several notices of violation related to its wastewater discharge permit, most recently in June 1998. We have taken various corrective measures. However, we continue to experience difficulty in meeting the wastewater flow limitations contained in its discharge permit and we are evaluating additional measures, including seeking modification to our permit. We have installed new treatment equipment. The cost for such installation, plus the anticipated cost of any additional installations and/or outsourcing of the plating processes that create the discharge, is not expected to be material. We do not believe that the notices will result in any material sanctions. See "Risk Factors-- Environmental Risks and Regulations" and "Business--Environmental Matters." As part of its investigation of the crash off the Canadian coast on September 2, 1998 of Swissair Flight 111, the Canadian Transportation Safety Board ("TSB") notified us that they recovered burned wire which was attached to the in-flight entertainment system installed on some of Swissair's aircraft by one of our subsidiaries. Attorneys for families of persons who died aboard the flight requested that we put our insurance carrier on notice of a potential claim by those families, and we did so. The TSB has advised us that it has no evidence that the system we installed malfunctioned or failed during the flight. We are fully cooperating with the TSB investigation. On July 21, 1998, plaintiffs seeking to represent a purported class of our stockholders filed in Delaware Chancery Court an action entitled TAAM Associates, Inc. v. DeCrane, et al. against DeCrane Aircraft, our directors, DLJ, Inc. and one of its affiliates. The compliant alleged, among other things, that our directors had breached their fiduciary duties by entering into the merger agreement with the DLJ affiliate (see "Recent Developments--The DLJ Acquisition") without engaging in an auction or "active market check" and, therefore, agreed to terms that were unfair and inadequate from the standpoint of our stockholders. On July 24, 1998, the plaintiffs amended the complaint to add allegations that the Schedule 14D-9 we filed with the SEC as part of the tender offer and merger transaction contained various material misstatements or omissions; that the termination fees to the affiliate of DLJ were unreasonable; and that the directors who approved the DLJ acquisition had conflicts of interest. The complaint sought among other things an injunction barring the transaction, or damages plus attorneys' fees and litigation expenses. Without admitting any wrongdoing in the action, in order to avoid the burden and expense of further litigation, the defendants reached an agreement in principle with the plaintiffs which contemplates settlement of the action. The foregoing defendants and the plaintiffs entered into a memorandum of understanding under which the parties, subject to selected facts being confirmed through discovery which has not been completed, would enter into a settlement agreement subject to approval by the Court of Chancery. That memorandum of understanding required that we make several additional disclosures by filing an amendment to our Schedule 14D-9, which we did, and provided for a complete release and settlement of all claims arising out of the facts set forth 58 in the complaint. The memorandum also contemplates that plaintiffs' counsel will apply to the Court of Chancery for an award of attorney's fees and litigation expenses in an amount not exceeding $375,000, which application the defendants agreed not to oppose. In August 1998, DeCrane Aircraft and R. Jack DeCrane, its chief executive officer, were served in an action filed in state court in California by Robert A. Rankin, claiming that he was due additional compensation in the form of stock options, and claiming fraud, negligent misrepresentation and breach of contract in connection therewith, fraudulent misrepresentation in violation of certain provisions of the California Labor Code (for which doubled damages are sought), promissory estoppel, and wrongful discharge in violation of public policy (as a result of his allegations of improprieties in connection with the DLJ acquisition transactions). The action seeks not less than $1.5 million plus punitive damages and costs. The action is in its early stage of development and discovery has not been completed. We intend to vigorously defend against the claim. Mr. Rankin's employment with DeCrane Aircraft was terminated. Two of our subsidiaries are defendants in an action filed in federal court by American International Airways, Inc., relating to the conversion and modification of two Boeing 747 aircraft from passenger to freighter configuration. No specific amount of damages is sought. The events in question occurred prior to our purchase of the relevant businesses from their prior owner. DeCrane Aircraft and the two subsidiaries are indemnified for any such liability and for the further cost of defense of the action. A third subsidiary was named as a defendant but has been dismissed from the case without prejudice. We are a party to a license agreement with McDonnell Douglas (now a part of Boeing) pursuant to which we may request specified data in order to design and market modifications to aircraft manufactured by McDonnell Douglas. Under the agreement, we are to pay McDonnell Douglas a royalty of five percent of the net sales price of all modifications sold by us, for which we have requested data from McDonnell Douglas. We have requested data for a single modification, which we believe is exempt from the agreement's provision requiring royalties. In 1996, McDonnell Douglas made a demand for $650,000 for royalties. We do not believe that we are obligated to McDonnell Douglas in any amount. However, if the claim is asserted, and if we are unsuccessful in defending it, we may be required to pay royalties to McDonnell Douglas. We are party to other litigation incident to the normal course of business. We do not believe that the outcome of any of such other matters in which we are currently involved will have a material adverse effect on our financial condition or results of operations. 59 MANAGEMENT The following table sets forth certain information concerning each person who is currently a director or executive officer of DeCrane Aircraft. Each director also serves as a director of DeCrane Holdings.
NAME AGE POSITION - ------------------------------------------ --- --------------------------------------------------------------- R. Jack DeCrane........................... 52 Director and Chief Executive Officer Charles H. Becker......................... 52 President and Chief Operating Officer John R. Hinson............................ 36 Chief Financial Officer, Secretary and Treasurer Thompson Dean............................. 40 Chairman of the Board of Directors John F. Fort, III......................... 57 Director Dr. Robert J. Hermann..................... 65 Director Dr. Paul G. Kaminski...................... 56 Director Susan C. Schnabel......................... 37 Director Timothy J. White.......................... 37 Director
R. JACK DECRANE is the founder of DeCrane Aircraft. Mr. DeCrane served as President since it was founded in December 1989, until April 1993 when he was elected to the newly-created office of Chief Executive Officer. Prior to founding our company, Mr. DeCrane held various positions at the aerospace division of B.F. Goodrich. Mr. DeCrane was a Group Vice President at the aerospace division of B.F. Goodrich with management responsibility for three business units from 1986 to 1989. CHARLES H. BECKER has been President and Chief Operating Officer of DeCrane Aircraft since April 1998. Mr. Becker previously served as Group Vice President of Components of the Company from December 1996 to April 1998, and President of Tri-Star from December 1994 to April 1998. Prior to joining us, Mr. Becker was President of the Interconnect Systems Division of Microdot, Inc. from 1984 to 1994. JOHN R. HINSON has been the Chief Financial Officer, Secretary and Treasurer for DeCrane Aircraft since September 1998. From April 1998 to August 1998, he served as Vice President, Planning & Business Development. From March 1995 to March 1998, Mr. Hinson was Vice President, Finance and Chief Financial Officer for the Tri-Star Companies. From October 1991 to March 1995 he held various positions, including Director of Finance and Director of Operations, at MiniMed, Inc. Prior to that, Mr. Hinson was employed in financial positions by Hewlett-Packard Company and Bankers Trust Company. THOMPSON DEAN has been the Managing Partner of DLJ Merchant Banking, Inc. ("DLJMB Inc."), since November 1996. Previously, Mr. Dean was a Managing Director of DLJMB Inc. (and its predecessor). Mr. Dean serves as a director of Commvault Inc., Von Hoffman Press, Inc., Manufacturer's Services Limited, Phase Metrics, Inc., AKI Holding Corp. and Insilco Holding Corporation. JOHN F. FORT, III served as Chairman of the Board of Directors of Tyco International, Inc. from 1982 to December 1992, and as Chief Executive Officer from 1982 to June 1992. Mr. Fort serves as a director of Tyco International, Inc., Dover Corporation and Roper Industries. DR. ROBERT J. HERMANN is a Senior Partner of Global Technology Partners. Dr. Hermann most recently served as Senior Vice President for Science and Technology at United Technologies Corporation and served in various other capacities at United Technologies Corporation since 1982. Prior to joining United Technologies Corporation, Dr. Hermann spent twenty years with the National Security Agency. In 1977 he was appointed Principal Deputy Assistant Secretary of Defense for Communications, Command, Control and Intelligence, and in 1979 was named Assistant Secretary of 60 the Air Force for Research, Development and Logistics and Director of the National Reconnaissance Office. DR. PAUL G. KAMINSKI is a Senior Partner of Global Technology Partners. Dr. Kaminski currently serves as Chief Executive Officer of Technovation, Inc., a consulting firm focusing on business strategy and advanced technology. Dr. Kaminski served as U.S. Undersecretary of Defense for Acquisition and Technology from October 1994 to 1997. Prior to that time, he served as Chairman and Chief Executive Officer of Technology Strategies and Alliances. Dr. Kaminski is a former Chairman of the Defense Science Board and is currently a member of the Senate Select Committee on Intelligence-Technical Advisory Group, the NRO Advisory Council and the National Academy of Engineering. Dr. Kaminski is a director of General Dynamics Corporation, Dyncorp, Eagle-Picher Technologies and several privately held information technology companies. SUSAN C. SCHNABEL has been a Managing Director of DLJMB Inc. since January 1998. In 1997, she served as Chief Financial Officer of PETsMART, a high growth specialty retailer of pet products and supplies. From 1990 to 1996, Ms. Schnabel was with Donaldson, Lufkin & Jenrette Securities Corporation, where she became a Managing Director in 1996. Ms. Schnabel serves as a director of Dick's Clothing and Sporting Goods, Environmental Systems Products and Wavetek Corporation. TIMOTHY J. WHITE has been a Vice President of DLJMB Inc. since June 1998. From October 1994 to May 1998, Mr. White was an Associate and Vice President at Donaldson, Lufkin & Jenrette Securities Corporation. From May 1994 to October 1994, Mr. White was an Associate Counsel in the Office of the Independent Counsel, United States Department of Justice. Prior to that time, Mr. White was an attorney with Davis Polk & Wardwell. 61 SUMMARY COMPENSATION TABLE The following table describes all annual compensation awarded to, earned by or paid to our Chief Executive Officer and the four-most highly compensated executive officers other than the Chief Executive Officer for the years ended December 31, 1998, 1997 and 1996.
ANNUAL COMPENSATION LONG TERM COMPENSATION -------------------------------------------- ------------------------------------------------ OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING ALL OTHER COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION YEAR SALARY BONUS (1) AWARDS SAR(2) PAYOUT (3) --------- --------- --------- ----------- ----------- ----------- --------- ----------- R. Jack DeCrane..... 1998 $ 281,761 $1,044,000 $ 30,151 50,000 -- Chief Executive 1997 244,744 220,000 -- 50,000 $ 29,411 Officer 1996 206,600 146,000 7,813 34,028 -- and Director(4) Charles H. Becker... 1998 $ 206,948 $ 160,000 $ 14,678 -- -- President and Chief 1997 174,492 102,000 6,168 15,000 $ 18,000 Operating Officer(5) 1996 148,750 65,000 9,103 19,850 30,586 R.G. MacDonald(6)... 1998 $ 212,744 $ 107,000 $ 20,260 -- -- 1997 184,859 102,000 10,536 4,000 -- 1996 177,437 82,000 13,200 -- -- John R. Hinson ..... 1998 $ 136,155 $ 126,000 $ 3,872 -- -- Chief Financial 1997 108,400 33,500 2,112 -- -- Officer and 1996 88,273 28,500 2,083 -- -- Secretary Robert A. 1998 $ 131,115 $ -- $ 9,856 -- -- Rankin(7)......... 1997 149,309 103,000 7,158 15,000 -- 1996 139,375 65,000 12,838 19,850 --
- ------------------------ (1) Amounts paid by us for premiums on health, life and long-term disability insurance and automobile leases provided by us for the benefit of the named executive officer. (2) Number of shares of common stock issuable upon exercise of options granted during the last fiscal year. (3) Relocation costs. (4) Mr. DeCrane also served as Chairman of the Board of Directors through August 1998. (5) Mr. Becker served as Group Vice President of Components, and President of Tri-Star, through April 1998. Mr. Becker became President and Chief Operating Officer in April 1998. (6) Mr. MacDonald served as President through December 1996 and Vice Chairman of the Board of Directors through August 1998. (7) Mr. Rankin served as Chief Financial Officer, Secretary and Treasurer until August 1998. STOCK OPTION/SARS GRANTS IN LAST FISCAL YEAR The following table sets forth individual grants of stock options granted to the executive officers named below during the fiscal year ended December 31, 1998, pursuant to the share incentive plan 62 then in place. (See "Employment Agreements and Compensation Arrangements--Former Share Incentive Plan.").
POTENTIAL REALIZABLE NUMBER OF VALUE AT ASSUMED SECURITIES ANNUAL RATES OF STOCK UNDERLYING % OF EXERCISE OR PRICE APPRECIATION OPTIONS/ OPTIONS/SAR BASE PRICE EXPIRATION ------------------------ NAME SAR GRANTED GRANTED PER SHARE DATE 5% 10% - ------------------------------------------- ------------ --------------- ----------- ------------- ---------- ------------ R. Jack DeCrane............................ 50,000 100% $ 16.875 2007 $ (1) $ (1) Charles H. Becker.......................... -- -- R.G. MacDonald............................. -- -- John R. Hinson............................. -- -- Robert A. Rankin........................... -- --
- ------------------------ (1) DeCrane Aircraft cancelled all options for common stock, and all holders thereof were paid $23.00 per share, shortly after the grant of these options. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES The following table sets forth information about the stock options exercised by the executive officers named below during the fiscal year ended December 31, 1998.
NUMBER OF VALUE OF SECURITIES UNEXERCISED SHARES UNDERLYING IN-THE-MONEY ACQUIRED VALUE UNEXERCISED OPTIONS/SAR NAME ON EXERCISE REALIZED OPTIONS/SAR AT FY-END(1) - ------------------------------------ --------------- --------- ------------- ----------------- EXERCISABLE/ EXERCISABLE/ UNEXERCISABLE UNEXERCISABLE ------------- ----------------- R. Jack DeCrane..................... -- $3,347,850 $ 0/0 $ 0/0 Charles H. Becker................... -- $ 811,419 0/0 0/0 R.G. MacDonald...................... -- $1,299,422 0/0 0/0 John R. Hinson...................... -- $ 107,092 0/0 0/0 Robert A. Rankin.................... -- $ 811,419 0/0 0/0
- ------------------------ (1) Based on the common stock share price of $23.00 per share as of August 28, 1998, the measuring date. In August 1998, on the effective date of the mergers conducted as a part of the DLJ acquisition, all outstanding options for the common stock of DeCrane Aircraft were canceled. See "Recent Developments--The DLJ Acquisition". The holders of all vested and unvested options received a cash payment determined, for each option, as follows: ($23.00 per share--exercise price of X maximum number of shares holder could option) have purchased (if all options were fully vested) by exercising option just before the effective date.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS On July 17, 1998, the Compensation Committee of our Board of Directors approved an employment agreement between DeCrane Aircraft and R. Jack DeCrane replacing his prior 63 employment agreement that was to expire on September 1, 1998. Mr. DeCrane's employment agreement provides for various benefits, including: - an initial salary of $310,000, which is subject to annual review and increase, but not decrease; - an annual bonus ranging from 0% to 100% of Mr. DeCrane's annual base salary depending on the degree to which we achieve certain performance goals; - a $500,000 bonus in recognition of our then-recent acquisition of Avtech Corporation; - a $250,000 signing bonus; - options to purchase 50,000 shares of common stock of DeCrane Aircraft at a price equal to the fair market value of the shares as of July 16, 1998 (one-half of which were immediately exercisable; the rest became exercisable upon the completion of the DLJ acquisition); - a $150,000 cash continuation bonus payable on January 2, 1999, if employed by us on January 1, 1999. Mr. DeCrane's immediately exercisable options were cancelled in August 1998 and he received a cash payout in lieu of the options, calculated according to the formula noted above, under "Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values." The employment agreement also provides that if certain change-of-control events occur, and Mr. DeCrane's employment is terminated by us for any reason (other than for cause (as defined in the agreement) or as a result of his death or disability), or by Mr. DeCrane for good reason (as defined in the agreement), then we will pay Mr. DeCrane a lump sum in cash within fifteen days. The amount of that payment will be $1.00 less than three times the sum of Mr. DeCrane's average base salary plus bonus for the five calendar years preceding his termination date. FORMER SHARE INCENTIVE PLAN We adopted a Share Incentive Plan in 1993 which permitted us to grant to our eligible employees options to purchase shares of our common stock, shares of common stock with conditional vesting based upon performance criteria, and options to receive payments based on the appreciation of common stock, commonly known as Share Appreciation Rights (or "SARs"). That plan permitted such grants to be made to key employees of DeCrane Aircraft designated by a compensation committee of the Board of Directors. As described above, all options to purchase common stock outstanding in August 1998 were terminated when the DLJ acquisition transactions were completed, and the holders received cash payments in exchange for those options. DeCrane Holdings has indicated to us that it intends to give certain key members of our management the opportunity to purchase an equity participation in DeCrane Holdings pursuant to customary arrangements. However, these parties have not entered into any agreement regarding such equity participation. 1996 INCENTIVE PLAN In 1996 we introduced an incentive plan (the "1996 Incentive Plan") for our management personnel tied to DeCrane Aircraft's and each operating unit's annual budget as approved each year by the Compensation Committee of the Board of Directors. The 1996 Incentive Plan matrix provides for an annual bonus of up to 70% of participating employees' base salary if the relevant operating unit achieves 110% of budget. Fifty percent of the bonus is payable solely based on performance of the relevant operating unit and the remainder is payable upon the achievement by the employee of his or her individual objectives in the discretion of our Chief Executive Officer or the president of the relevant operating unit. 64 401(K) RETIREMENT PLAN Effective April 1992, we adopted the Lincoln National Life Insurance Company Non-Standardized 401(k) Salary Reduction Plan and Trust Prototype Plan. The 401(k) allows employees as participants to defer, on a pre-tax basis, a portion of their salary and accumulate tax deferred earnings, plus interest, as a retirement fund. Effective October 1, 1997, we matched 25% of the employee contribution up to 6% of the employee's salary for the fourth quarter of 1997 and each quarter of 1998. Effective January 1, 1999, we plan to match 50% of the employee contribution for up to 6% of the employee's salary. The full amount vested in a participant's account will be distributed to a participant following termination of employment, normal retirement or in the event of disability or death. DIRECTORS' COMPENSATION The directors of DeCrane Aircraft generally do not receive annual fees or fees for attending meetings of DeCrane Aircraft of the Board of Directors or committees thereof. However, John F. Fort, III, an independent director not affiliated with any investor in DeCrane Holdings, receives a director's fee of $5,000 for each meeting attended. Also, all directors are reimbursed for out-of-pocket expenses. We expect to continue those policies. DeCrane Holdings does not compensate or intend to compensate its directors. 65 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All of the outstanding shares of common stock of DeCrane Aircraft are owned by DeCrane Holdings. DeCrane Aircraft has no other class of stock outstanding. The following table sets forth the beneficial ownership of DeCrane Holdings' voting securities as of February 1, 1999 by its principal owners (and other persons who we are required to mention, such as executive officers and directors).
COMMON STOCK 14% SENIOR REDEEMABLE ----------------------------- EXCHANGEABLE PREFERRED STOCK NUMBER OF DUE 2008 SHARES, ---------------------------- PARTIALLY NUMBER OF NAME OF BENEFICIAL OWNER (1) DILUTED(2) PERCENTAGE(2) SHARES PERCENTAGE - --------------------------------------------------------- ---------- ----------------- ----------- --------------- DLJMB Funds(3)........................................... 2,981,087 99% 340,000 99% Thompson Dean(4)......................................... -- -- -- DLJMB Inc. 277 Park Avenue New York, New York 10172 Susan C. Schnabel(4)..................................... -- -- -- -- DLJMB Inc. 277 Park Avenue New York, New York 10172 Timothy J. White(4)...................................... -- -- -- -- DLJMB Inc. 277 Park Avenue New York, New York 10172 Global Technology Partners, LLC(5)....................... -- -- -- -- 1300 I Street N.W. Washington, D.C. Dr. Robert J. Hermann(5)................................. 5,938 -- 714 -- c/o Global Technology Partners, LLC 1300 I Street, N.W. Washington, D.C. Dr. Paul G. Kaminski(5).................................. 5,938 -- 714 -- c/o Global Technology Partners, LLC 1300 I Street, N.W. Washington, D.C. John F. Fort, III........................................ -- -- -- -- R. Jack DeCrane.......................................... -- -- -- -- Charles H. Becker........................................ -- -- -- -- John R. Hinson........................................... -- -- -- -- All directors and named executive officers as a group (9 persons)............................................ 11,876 -- 1,428 --
- ------------------------ (1) Each person who has the power to vote and direct the disposition of shares is deemed to be a beneficial owner of those shares. (2) The common stock columns show number of shares owned and total percentage of ownership in the manner required by SEC rules. The entry for each holder of warrants assumes that the particular holder, and no-one else, fully exercises all rights under those warrants to purchase shares of common stock. (3) Reflects 2,826,087 shares, and warrants for the issuance of an additional 155,000 shares, held directly by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and the following related 66 investors: DLJ Merchant Banking Partners II-A, L.P.; DLJ Offshore Partners II, C.V. ("Offshore"); DLJ Diversified Partners, L.P.; DLJ Diversified Partners-A, L.P.; DLJ Millennium Partners, L.P.; DLJ Millennium Partners-A, L.P.; DLJMB Funding II, Inc.; UK Investment Plan 1997 Partners, Inc. ("UK Partners"); DLJ EAB Partners, L.P.; DLJ First ESC L.P. and DLJ ESC II L.P. See "Certain Relationships and Related Transactions" and "Plan of Distribution." The address of Offshore is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands Antilles. The address of UK Partners is 2121 Avenue of the Stars, Fox Plaza, Suite 3000, Los Angeles, California 90067. The address of each of the other persons is 277 Park Avenue, New York, New York 10172. (4) Messrs. Dean and White and Ms. Schnabel are officers of DLJMB Inc., an affiliate of DLJMB and DLJSC. The share data shown for these individuals excludes shares shown as held by the DLJMB Funds; Messrs. Dean and White and Ms. Schnabel disclaim beneficial ownership of those shares. (5) Messrs. Hermann and Kaminski are members of Global Technology Partners, LLC ("GTP"). Six members of GTP, including Messrs. Hermann and Kaminski, acquired 20,098 shares of DeCrane Holdings common stock, and 2,417 shares of DeCrane Holdings 14% Senior Redeemable Exchangeable Preferred Stock due 2008, in a transaction negotiated with DeCrane Holdings. The share data shown for GTP and Messrs. Hermann and Kaminski excludes shares shown as held by the individual members; Messrs. Hermann and Kaminski disclaim beneficial ownership in any of the shares held by the other members. DeCrane Holdings is authorized to issue an aggregate of 3,500,000 shares of DeCrane Holdings Common Stock, par value $.01 per share, of which 2,846,185 are outstanding (excluding 305,000 reserved for issuance for outstanding warrants). DeCrane Holdings is authorized to issue up to 2,500,000 shares of DeCrane Holdings preferred stock, par value $.01 per share, in one or more series, of which 342,417 are outstanding. For a full description of DeCrane Holdings' capital stock, please review DeCrane Holdings' Certificate of Incorporation and Certificate of Designation for its 14% Senior Redeemable Exchangeable Preferred Stock due 2008. You can obtain a copy from us or from the exhibits to the registration statement of which this prospectus is a part. See "Where You Can Obtain More Information" in the Summary. 67 CERTAIN RELATIONSHIPS AND TRANSACTIONS THE MERGER AGREEMENT. The Merger Agreement entered into in connection with the DLJ acquisition entitled a holding company controlled by DLJMB to designate a number of directors proportionally commensurate with its stock ownership of DeCrane Aircraft. DeCrane Holdings selected all of the current members of the Board of Directors of DeCrane Aircraft. DLJMB or its designate selected all of the members of the Board of Directors of DeCrane Holdings. THE DLJ ACQUISITION. DLJ Capital Funding, Inc., an affiliate of DLJMB, received customary fees and reimbursement of expenses in connection with the arrangement and syndication of the bank credit facility and as a lender thereunder. DLJ Bridge Finance, Inc., an affiliate of DLJMB, received customary fees in connection with its commitment to purchase and its purchase of the bridge notes. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), which is also an affiliate of DLJMB, acted as financial advisor and dealer manager in connection with the tender offer, as arranger of the bank credit facility and received customary fees for those services; DLJSC also acted as the initial purchaser of the old notes. The aggregate amount of all fees payable to the DLJ entities in connection with the DLJ acquisition is approximately $12.0 million. DeCrane Aircraft is also obligated to reimburse DLJSC for certain reasonable out-of-pocket expenses incurred in connection with the tender offer (including the fees and disbursements of outside counsel) and to indemnify DLJSC against certain liabilities, including certain liabilities under the federal securities laws. In addition, DeCrane Aircraft is obligated to pay DLJSC an annual advisory fee of $300,000 beginning on the consummation of the tender offer for a period of five years. We may from time to time enter into other investment banking relationships with DLJSC or one of its affiliates pursuant to which DLJSC or its affiliate will receive customary fees and will be entitled to reimbursement for all reasonable disbursements and out-of-pocket expenses incurred in connection therewith. We expect that any such arrangement will include provisions for the indemnification of DLJSC against certain liabilities, including liabilities under the federal securities laws. THE INVESTORS AGREEMENT. In connection with the DLJ acquisition, an Investors' Agreement dated as of August 28, 1998 (the "Investors' Agreement") was entered into among DeCrane Holdings and the DLJMB Funds. It provides that any person acquiring shares of common stock or preferred stock of DeCrane Holdings who is required by the terms of the Investors' Agreement or any employment agreement or stock purchase, option, stock option or other compensation plan of DeCrane Holdings to become a party thereto shall execute an agreement to become bound by the Investors' Agreement and thereafter shall be bound by it. The terms of the Investors' Agreement restrict transfers of the shares of DeCrane Holdings common stock and preferred stock by the stockholders party to the agreement. The agreement permits those shareholders to participate in certain sales of shares of DeCrane Holdings' common stock by the DLJMB Funds and permits the DLJMB Funds to require the other shareholders who are party to the Investors Agreement to sell shares of DeCrane Holdings' common stock in certain circumstances should the DLJMB Funds choose to sell any such shares owned by them. The DLJMB Funds are entitled, pursuant to the agreement, to request six demand registrations with respect to the DLJMB warrants for DeCrane Holdings common stock, the common stock and preferred stock held by the funds, which are immediately exercisable subject to customary deferral and cutback provisions. In addition, the shareholders will also be entitled to unlimited piggyback registration rights (other than in the case of a registration of shares issuable in connection with any employee benefit plan or in connection with an acquisition), subject to customary cutback provisions. The agreement provides that DeCrane Holdings will indemnify the shareholders against certain liabilities and expenses, including liabilities under the Securities Act. The Investors' Agreement also provides that the DLJMB Funds have the right to appoint all of the members of the Boards of Directors of DeCrane Holdings and DeCrane Aircraft, and that at least one of such directors on each board will be an independent director. Messrs. Hermann, Kaminski and Fort are independent directors. 68 Each warrant for DeCrane Holdings common stock held by the DLJMB funds entitles the holder thereof to purchase one share of common stock at an exercise price of not less than $0.01 per share subject to customary antidilution provisions and other customary terms. These warrants are exercisable at any time prior to 5:00 p.m. New York City time on August 28, 2009, subject to applicable federal and state securities laws. In connection with the DLJ acquisition, Global Technology Partners, LLC ("GTP") will have options to purchase up to 1.25% of DeCrane Holdings common stock. The options will vest over a three-year period, subject to acceleration if the DLJMB Funds sell any of their shares of common stock. Those options will be exercisable at an exercise price equal to the price paid for DeCrane Holdings' common stock by the DLJMB Funds. In addition, in December 1998 six members of GTP, including Messrs. Hermann and Kaminski, purchased approximately $704,000 of shares of newly issued common and preferred stock of DeCrane Holdings. DeCrane Aircraft loaned half of the purchase price for such shares to those members at an interest rate equal to the interest rate on the longest maturity senior bank debt of DeCrane Aircraft in effect from time to time, plus 1.0%. The loans are repayable out of the proceeds from the sale of such stock and are secured by such stock. DeCrane Holdings has indemnified GTP against certain claims and liabilities, including liabilities under the Securities Act. PRIOR SHAREHOLDERS AGREEMENT. Pursuant to the Fifth Amended and Restated Shareholders Agreement dated January 10, 1997 among DeCrane Aircraft, Nassau Capital Partners, L.P., Brantley Venture Partners II, L.P., DSV Partners, IV, Electra Investment Trust P.L.C., Electra Associates, Inc. and certain other parties, and subject to election by the Company's stockholders, Nassau, Brantley and DSV each had the right to nominate a representative to serve as a director so long as the relevant stockholder owns at least five percent of the common stock. The Shareholders Agreement also provided that Mr. DeCrane may nominate a director for election by DeCrane Aircraft's stockholders for so long as he was the Chief Executive Officer of DeCrane Aircraft. The Shareholders Agreement ceased to be in effect upon consummation of the DLJ acquisition. WAIVERS AND EXCHANGES OF SECURITIES. Effective immediately prior to our initial public offering ("IPO"), certain of DeCrane Aircraft's then-existing shareholders, including Nassau, Brantley, DSV and the Electra entities, and holders of warrants for common stock, agreed to waive a number of rights under the agreements by which such shareholders and warrant holders acquired such rights from DeCrane Aircraft, releasing DeCrane Aircraft from certain dividend payment requirements, voting requirements and certain other rights, as well as eliminating certain negative and affirmative covenants contained therein. The foregoing agreement provided for: (i) the conversion of all 6,847,705 shares of issued and outstanding cumulative convertible preferred stock into 1,941,804 shares of common stock; (ii) the cashless exercise and conversion of all 52,784 and 9,355 issued and outstanding of such preferred stock warrants and common stock warrants, respectively, into a total of 16,585 shares of common stock; (iii) the cashless exercise of 508,497 mandatorily redeemable common stock warrants (the "Redeemable Warrants") into a total of 507,708 shares of common stock; and (iv) the cancellation of 95,368 Redeemable Warrants. In December 1997, DeCrane Aircraft issued an additional 16,918 shares of common stock to the Electra entities and 33,825 shares to Nassau to resolve a disputed calculation regarding the number of shares that should have been issued as part of the conversions described above. Redeemable Warrants exercisable into 208,968 common shares remained after the foregoing conversions. Of this amount, 138,075 Redeemable Warrants were cancelled upon the consummation of the IPO and repayment of DeCrane Aircraft's senior subordinated debt and convertible notes in accordance with the terms of the respective warrant agreements. Redeemable Warrants exercisable into 70,893 common shares remained after the foregoing conversions, the IPO and application of the net proceeds therefrom. Concurrent with the consummation of the IPO, the mandatory redemption feature 69 of these warrants was terminated and, as a result, the value ascribed thereto was reclassified to stockholders' equity as additional paid-in capital. Upon consummation of the IPO and as part of the foregoing conversions, R.G. MacDonald, Charles H. Becker, Robert A. Rankin and John R. Hinson exchanged an aggregate of 75,000 shares of preferred stock of the Company for 21,268 shares of common stock. FORMER INDEPENDENT DIRECTOR. In June 1997, we extended our Share Incentive Plan for employees to independent non-management directors of DeCrane Aircraft who are not appointed to the Board pursuant to the Existing Shareholders Agreement, and issued 6,000 options to Mitchell I. Quain, the only director presently qualifying for such plan. Such options were cancelled and Mr. Quain received a cash payment therefor in connection with the consummation of the tender offer. See "Recent Developments--The DLJ Acquisition." 70 DESCRIPTION OF BANK CREDIT FACILITY The bank credit facility is provided by a syndicate of lenders led by DLJSC, as arranger, and DLJ Capital Funding, as syndication agent. The bank credit facility initially included an $80.0 million term loan facility and a $50.0 million revolving credit facility which provides for loans and under which up to $10.0 million in letters of credit may be issued. The term loan facility is comprised of a Term A facility in the original amount of $35.0 million which matures on August 28, 2004 and a Term B facility in the original amount of $45.0 million which matures on August 28, 2005. The Term B facility was increased to $65.0 million in January 1999 by a First Amendment to the facility, in connection with our acquisition of PATS. The revolving credit facility is comprised of an acquisition facility of $25.0 million and a working capital facility of $25.0 million. A portion of the working capital facility was used to finance the conversion of shares into cash in connection with the DLJ acquisition and the remainder can be used for general corporate and working capital purposes, each of which matures on August 28, 2004. The working capital facility is subject to a potential, but uncommitted, increase of up to $20.0 million at the our request at any time prior to such maturity date. Such increase will be available only if one or more financial institutions agrees, at the time of our request, to provide it. Loans under the bank credit facility generally bear interest based on a margin over, at our option, the base rate or the Euro-Dollar rate. For the first six months after the January 1999 amendment, the margin for the Term A loan and revolving credit facility is 1.50% for base rate borrowings and 2.75% for Euro-Dollar borrowings, and the margin for the Term B loan is 1.75% for base rate borrowings and 3.00% for Euro-Dollar borrowings. Thereafter, the margin will vary based upon DeCrane Aircraft's ratio of total debt to EBITDA (as defined in the bank credit agreement): ranging from 0.0% to 1.50% over the alternate base rate and from 1.00% to 2.75% over the reserve adjusted Euro-Dollar rate, for the revolving credit facility and Term A facility, and from 0% to 1.25% over the base rate and from 1.25% to 3.00% over the reserve adjusted Euro-Dollar rate, for the Term B facility. The applicable margins and commitment fees are determined based on the ratio (the "Leverage Ratio") of consolidated total debt to consolidated EBITDA of DeCrane Aircraft and its subsidiaries (as defined in the bank credit agreement). We will pay commitment fees at a rate equal to 0.5% per annum on the unused portion of the working capital facility and at a rate equal to 0.5% or 0.75% per annum, depending upon utilization, on the unused portion of the acquisition facility. Those fees are payable quarterly in arrears and upon the maturity or termination of the revolving credit facility. We pay a letter of credit fee on the undrawn amounts of letters of credit issued and outstanding under the bank credit facility, at a rate per annum equal to the then-applicable margin for Euro-Dollar loans under the Term A facility, which is shared by all lenders participating in such letter of credit, and an additional amount to be mutually agreed upon to the issuer of each letter of credit. The term loans are subject to the following amortization schedule, which was amended as to the Term B loans by the January 1999 amendment:
TERM A LOAN TERM B LOAN YEAR AMORTIZATION AMORTIZATION - ------------------------------------------------------------------ ------------- ------------- 1................................................................. 0.0% 0.9% 2................................................................. 5.0% 1.0% 3................................................................. 10.0% 1.0% 4................................................................. 20.0% 1.0% 5................................................................. 25.0% 1.0% 6................................................................. 40.0% 1.0% 7................................................................. -- 94.1% ----- ----- 100.0% 100.0% ----- ----- ----- -----
71 The bank credit facility will be subject to mandatory prepayment: - with 50% of the net cash proceeds received from the issuance of equity securities to the extent that the Leverage Ratio exceeds 3.5 to 1, subject to certain exceptions, - with 100% of the net cash proceeds received from the issuance of debt, subject to certain exceptions, - with 100% of the net cash proceeds received from permitted asset sales, subject to certain exceptions and - with 50% of excess cash flow (as defined in the bank credit facility) for each fiscal year to the extent that the Leverage Ratio exceeds 3.5 to 1. We are required to apply all mandatory prepayment amounts first to the prepayment of the term loan facility, and thereafter to the prepayment of the revolving credit facility. DeCrane Holdings, and each of DeCrane Aircraft's wholly-owned direct and indirect domestic subsidiaries other than Audio International Sales, Inc., a U.S. Virgin Islands corporation, are guarantors of the bank credit facility. Our obligations under the bank credit facility are also secured by: - all existing and after-acquired personal property of DeCrane Aircraft and the foregoing subsidiary guarantors, including a pledge of all of the stock of all existing or future subsidiaries DeCrane Aircraft (provided that no more than 65% of the voting stock of any foreign subsidiary shall be pledged), - first-priority perfected liens on all material existing and after-acquired real property interests of DeCrane Aircraft and the foregoing subsidiary guarantors, subject to customary permitted liens (as defined in the bank credit facility), - a pledge by DeCrane Holdings of the stock of DeCrane Aircraft, and - a negative pledge on all assets of DeCrane Aircraft and its subsidiaries, in each case subject to certain exceptions. The bank credit facility contains customary covenants and restrictions on our ability to engage in certain activities, including, but not limited to: (i) limitations on other indebtedness, liens, investments and guarantees, (ii) restrictions on dividends and redemptions and payments on subordinated debt and (iii) restrictions on mergers and acquisitions, sales of assets and leases. The bank credit facility also contains financial covenants requiring us to maintain a minimum EBITDA, a minimum coverage of interest expense and a minimum coverage of fixed charges, and to not exceed a maximum leverage ratio or maximum level of capital expenditures. Borrowings under the bank credit facility are subject to significant conditions, including compliance with certain financial ratios and the absence of any material adverse change. See "Risk Factors-- Substantial Leverage." 72 DESCRIPTION OF NOTES GENERAL The notes have been issued pursuant to an Indenture (the "Indenture") between DeCrane Aircraft and State Street Bank and Trust Company, as trustee (the "Trustee"). The terms of the notes include those stated in the Indenture, and those which are incorporated into the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The notes are subject to all of those terms, and holders of notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The terms of the new notes and the old notes are substantially the same in all material respects, except that the new notes will not be subject to liquidated damages penalties for failure to timely register the notes under the Securities Act, and will be more freely transferable by the holders thereof by reason of their registration thereunder. This section is a summary of the Indenture's principal terms, not a complete statement. You should read the entire Indenture, and the Registration Rights Agreement described below, for a complete understanding of the rights and obligations of the holders of notes. Copies of the Indenture and Registration Rights Agreement are available as set forth under "--Additional Information." Also, the terms of the Indenture use many specially defined terms. In this summary, we have used the key defined terms, which are shown here as capitalized words. You should refer to the definitions listed in "--Certain Definitions" below for their complete scope and meaning. The notes are general unsecured obligations of DeCrane Aircraft and are subordinated in right of payment to all existing and future Senior Indebtedness of DeCrane Aircraft (including borrowings under the bank credit facility). The notes rank PARI PASSU with any future senior subordinated Indebtedness of DeCrane Aircraft and rank senior in right of payment to all future subordinated Indebtedness of DeCrane Aircraft. The notes are effectively subordinated to all liabilities of DeCrane Aircraft's subsidiaries that are not Guarantors, including trade payables. The notes are unconditionally guaranteed on a senior subordinated basis by DeCrane Aircraft's existing wholly-owned domestic subsidiaries. The Note Guarantees are general unsecured obligations of the Guarantors, are subordinated in right of payment to all existing and future Senior Indebtedness of the Guarantors, including indebtedness under the bank credit facility, and rank senior in right of payment to any future subordinated indebtedness of the Guarantors. On a pro forma basis, as of December 31, 1998, DeCrane Aircraft and the Guarantors would have had outstanding approximately $124.4 million of Senior Indebtedness and DeCrane Aircraft's non-Guarantor subsidiaries would have had approximately $2.2 million of outstanding liabilities (other than guarantees under the bank credit facility), including trade payables. The Indenture will permit DeCrane Aircraft and its Subsidiaries to incur additional Indebtedness, including Senior Indebtedness, in the future. See "Risk Factors--Subordination of the Notes to Senior Debt; Possible Additional Subordinated Debt" and "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." As of the date of the Indenture, all of DeCrane Aircraft's Subsidiaries were designated as Restricted Subsidiaries. However, under certain circumstances, DeCrane Aircraft will be permitted to designate current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to the restrictive covenants set forth in the Indenture. PRINCIPAL, MATURITY AND INTEREST The notes will initially be limited in aggregate principal amount to $100.0 million and will mature on September 30, 2008. Interest on the notes will accrue at the rate of 12% per annum and will be payable semi-annually in arrears on March 30 and September 30, commencing on March 30, 1999, to holders of record on the immediately preceding March 15 and September 15. Interest on the notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of 73 twelve 30-day months. Principal of, premium, if any, and interest on the notes will be payable at the office or agency of DeCrane Aircraft maintained for such purpose within the City and State of New York or, at the option of DeCrane Aircraft, payment of interest may be made by check mailed to the holders of the notes at their respective addresses set forth in the register of holders of notes; PROVIDED that all payments of principal, premium and interest with respect to notes represented by one or more permanent global notes will be paid by wire transfer of immediately available funds to the account of the Depository Trust Company or any successor thereto. Until otherwise designated by DeCrane Aircraft, DeCrane Aircraft's office or agency in New York will be the office of the Trustee maintained for such purpose. The notes will be issued in denominations of $1,000 and integral multiples thereof. Subject to the covenants described below, DeCrane Aircraft may issue additional notes under the Indenture having the same terms in all respects as the notes (or in all respects except for the payment of interest on the notes (i) scheduled and paid prior to the date of issuance of such notes or (ii) payable on the first Interest Payment Date following such date of issuance). The notes offered hereby and any such additional notes would be treated as a single class for all purposes under the Indenture. SUBORDINATION The payment of Subordinated Note Obligations is subordinated in right of payment, as set forth in the Indenture, to the prior payment in full in cash or cash equivalents of all Senior Indebtedness, whether outstanding on the date of the Indenture or thereafter incurred. Upon any distribution to creditors of DeCrane Aircraft in a liquidation or dissolution of DeCrane Aircraft or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to DeCrane Aircraft or their property, an assignment for the benefit of creditors or any marshalling of DeCrane Aircraft's assets and liabilities, the holders of Senior Indebtedness will be entitled to receive payment in full in cash or cash equivalents of all Obligations due in respect of such Senior Indebtedness (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness) before the holders of notes will be entitled to receive any payment with respect to the Subordinated Note Obligations, and until all Obligations with respect to Senior Indebtedness are paid in full in cash or cash equivalents, any distribution to which the holders of notes would be entitled shall be made to the holders of Senior Indebtedness (except that holders of notes may receive and retain Permitted Junior Securities and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). DeCrane Aircraft also may not make any payment upon or in respect of the Subordinated Note Obligations (except in Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance") if (a) a default in the payment of the principal of, premium, if any, or interest on or commitment fees relating to, Designated Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to Designated Senior Indebtedness that permits holders of the Designated Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the holders of any Designated Senior Indebtedness. Payments on the notes may and shall be resumed, in the case of a payment default, upon the date on which such default is cured or waived, and otherwise, upon the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived or cured for a period of not less than 90 days. 74 "Designated Senior Indebtedness" means (a) any Indebtedness outstanding under the bank credit facility and (b) any other Senior Indebtedness permitted under the Indenture the principal amount of which is $25.0 million or more and that has been designated by DeCrane Aircraft in writing to the Trustee as "Designated Senior Indebtedness." "Permitted Junior Securities" means Equity Interests in DeCrane Aircraft or debt securities of DeCrane Aircraft that are subordinated to all Senior Indebtedness (and any debt securities issued in exchange for Senior Indebtedness) to substantially the same extent as, or to a greater extent than, the notes are subordinated to Senior Indebtedness. "Senior Indebtedness" means, with respect to any Person, (a) all Obligations of such Person outstanding under the bank credit facility and all Hedging Obligations payable to a lender or an Affiliate thereof or to a Person that was a lender or an Affiliate thereof at the time the contract was entered into under the bank credit facility or any of its Affiliates, including, without limitation, interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, whether or not such interest is an allowable claim in such bankruptcy proceeding, (b) any other Indebtedness, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to any other Senior Indebtedness of such Person and (c) all Obligations with respect to the foregoing. However, Senior Indebtedness does not include (i) any liability for federal, state, local or other taxes, (ii) any Indebtedness of such Person (other than pursuant to the bank credit facility) to any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any Indebtedness that is incurred in violation of the Indenture. "Subordinated Note Obligations" means all Obligations with respect to the notes, including, without limitation, principal, premium (if any) and interest payable pursuant to the terms of the notes (including upon the acceleration or redemption thereof), together with and including any amounts received or receivable upon the exercise of rights of rescission or other rights of action (including claims for damages) or otherwise. The Indenture further requires that DeCrane Aircraft promptly notify holders of Senior Indebtedness if payment of the notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, holders of notes may recover less ratably than creditors of DeCrane Aircraft who are holders of Senior Indebtedness. NOTE GUARANTEES DeCrane Aircraft's payment obligations under the notes are jointly and severally guaranteed (the "Note Guarantees") by the Guarantors. The Note Guarantee of each Guarantor is subordinated to the prior payment in full in cash or cash equivalents of all Senior Indebtedness of such Guarantor (including such Guarantor's guarantee of the bank credit facility) to the same extent that the notes are subordinated to Senior Indebtedness of DeCrane Aircraft. The obligations of each Guarantor under its Note Guarantee are limited so as not to constitute a fraudulent conveyance under applicable law. The Indenture provides that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor unless: (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the notes, the Indenture and the Registration 75 Rights Agreement; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) DeCrane Aircraft would, at the time of such transaction and after giving PRO FORMA effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock." The requirements of clause (iii) of this paragraph will not apply in the case of a consolidation with or merger with or into DeCrane Aircraft or another Guarantor. The Indenture provides that, in the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "Repurchase at the Option of Holders." OPTIONAL REDEMPTION Except as provided below, the notes are not redeemable at DeCrane Aircraft's option prior to September 30, 2003. Thereafter, the notes will be subject to redemption at any time at the option of DeCrane Aircraft, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on September 30 of the years indicated below:
YEAR PERCENTAGE - -------------------------------------------------------------------------------------- ----------- 2003.................................................................................. 106.000% 2004.................................................................................. 104.000% 2005.................................................................................. 102.000% 2006 and thereafter................................................................... 100.000%
Notwithstanding the foregoing, on or prior to September 30, 2001, DeCrane Aircraft may redeem up to 35% of the aggregate principal amount of notes ever issued under the Indenture in cash at a redemption price of 112% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; PROVIDED that at least 65% of the aggregate principal amount of notes ever issued under the Indenture remains outstanding immediately after the occurrence of any such redemption and PROVIDED further that such redemption shall occur within 90 days of the date of the closing of any such Public Equity Offering. In addition, at any time prior to September 30, 2003, DeCrane Aircraft may, at its option upon the occurrence of a Change of Control, redeem the notes, in whole but not in part, upon not less than 30 nor more than 60 days' prior notice (but in no event may any such redemption occur more than 60 days after the occurrence of such Change of Control), in cash at a redemption price equal to (i) the present value of the sum of all the remaining interest (excluding accrued and unpaid interest, if any), premium and principal payments that would become due on the notes as if the notes were to remain outstanding and be redeemed on September 30, 2003, computed using a discount rate equal to the Treasury Rate plus 50 basis points, plus (ii) accrued and unpaid interest to the date of redemption. "Treasury Rate" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the 76 most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to September 30, 2003; PROVIDED that if the period from the redemption date to September 30, 2003 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. SELECTION AND NOTICE If less than all of the notes are to be redeemed at any time, selection of notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the notes are listed, or, if the notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED that no notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Senior Subordinated Note is to be redeemed in part only, the notice of redemption that relates to such Senior Subordinated Note shall state the portion of the principal amount thereof to be redeemed. A new Senior Subordinated Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Senior Subordinated Note. notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption. MANDATORY REDEMPTION DeCrane Aircraft is not required to make mandatory redemption of, or sinking fund payments with respect to, the notes. REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder of notes will have the right to require DeCrane Aircraft to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the date of repurchase (the "Change of Control Payment"). Within 60 days following any Change of Control, DeCrane Aircraft will (or will cause the Trustee to) mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. DeCrane Aircraft will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture relating to such Change of Control Offer, DeCrane Aircraft will comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations described in the Indenture by virtue thereof. On the Change of Control Payment Date, DeCrane Aircraft will, to the extent lawful, accept for payment all notes or portions thereof properly tendered pursuant to the Change of Control Offer, deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all notes or portions thereof so tendered, and deliver or cause to be delivered to the Trustee the notes so accepted together with an Officers' Certificate stating the aggregate principal amount of notes or portions thereof being purchased by DeCrane Aircraft. The Paying Agent will promptly mail to each 77 holder of notes so tendered the Change of Control Payment for such notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal amount to any unpurchased portion of the notes surrendered, if any; PROVIDED that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture provides that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, DeCrane Aircraft will either repay all outstanding Senior Indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding Senior Indebtedness to permit the repurchase of notes required by this covenant. DeCrane Aircraft will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the notes to require that DeCrane Aircraft repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. The bank credit facility prohibits DeCrane Aircraft from purchasing any notes and also provides that certain change of control events (which may include events not otherwise constituting a Change of Control under the Indenture) with respect to DeCrane Aircraft would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Indebtedness to which DeCrane Aircraft becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when DeCrane Aircraft is prohibited from purchasing notes, DeCrane Aircraft could seek the consent of its lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If DeCrane Aircraft does not obtain such a consent or repay such borrowings, DeCrane Aircraft will remain prohibited from purchasing notes. In such case, DeCrane Aircraft's failure to purchase tendered notes would constitute an Event of Default under the Indenture, which would, in turn, constitute a default under the bank credit facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the holders of notes. DeCrane Aircraft will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by DeCrane Aircraft and purchases all notes validly tendered and not withdrawn under such Change of Control Offer. "Change of Control" means the occurrence of any of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of DeCrane Aircraft and its Subsidiaries, taken as a whole, to any "person" or "group" (as such terms are used in Section 13(d) of the Exchange Act), other than the Principals and their Related Parties; (b) the adoption of a plan for the liquidation or dissolution of DeCrane Aircraft; (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d) of the Exchange Act), other than the Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of 50% or more of the voting power of the outstanding voting stock of DeCrane Aircraft; or 78 (d) the first day on which a majority of the members of the board of directors of DeCrane Aircraft are not Continuing Members. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of DeCrane Aircraft and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require DeCrane Aircraft to repurchase such notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of DeCrane Aircraft and its Subsidiaries taken as a whole to another Person or group may be uncertain. "Continuing Members" means, as of any date of determination, any member of the board of directors of DeCrane Aircraft who (a) was a member of such board of directors immediately after consummation of the Acquisition or (b) was nominated for election or elected to such board of directors with the approval of, or whose election to the board of directors was ratified by, at least a majority of the Continuing Members who were members of such board of directors at the time of such nomination or election or any successor Continuing Directors appointed by such Continuing Directors (or their successors). ASSET SALES The Indenture provides that DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (a) DeCrane Aircraft or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the board of directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (b) at least 75% of the consideration therefor received by DeCrane Aircraft or such Restricted Subsidiary is in the form of (i) cash or Cash Equivalents or (ii) property or assets that are used or useful in a Permitted Business, or the Capital Stock of any Person engaged in a Permitted Business if, as a result of the acquisition by DeCrane Aircraft or any Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary; PROVIDED that the amount of (x) any liabilities (as shown on DeCrane Aircraft's or such Restricted Subsidiary's most recent balance sheet), of DeCrane Aircraft or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases DeCrane Aircraft or such Restricted Subsidiary from further liability, (y) any securities, notes or other obligations received by DeCrane Aircraft or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by DeCrane Aircraft or such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received), and (z) any Designated Noncash Consideration received by DeCrane Aircraft or any of its Restricted Subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (z) that is at that time outstanding, not to exceed 15% of Total Assets at the time of the receipt of such Designated Noncash Consideration (with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value), shall be deemed to be cash for purposes of this provision; 79 and PROVIDED further that the 75% limitation referred to in clause (b) above will not apply to any Asset Sale in which the cash or Cash Equivalents portion of the consideration received therefrom, determined in accordance with the foregoing proviso, is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, DeCrane Aircraft or any such Restricted Subsidiary shall apply such Net Proceeds, at its option (or to the extent DeCrane Aircraft is required to apply such Net Proceeds pursuant to the terms of the bank credit facility), to (a) repay or purchase Senior Indebtedness or Pari Passu Indebtedness of DeCrane Aircraft or any Indebtedness of any Restricted Subsidiary, PROVIDED that, if DeCrane Aircraft shall so repay or purchase Pari Passu Indebtedness of DeCrane Aircraft, it will equally and ratably reduce Indebtedness under the notes if the notes are then redeemable, or, if the notes may not then be redeemed, DeCrane Aircraft shall make an offer (in accordance with the procedures set forth below for an Asset Sale Offer) to all holders of notes to purchase at a purchase price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest thereon to the date of purchase, the notes that would otherwise be redeemed, or (b) an investment in property, the making of a capital expenditure or the acquisition of assets that are used or useful in a Permitted Business, or Capital Stock of any Person primarily engaged in a Permitted Business if (i) as a result of the acquisition by DeCrane Aircraft or any Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary or (ii) the Investment in such Capital Stock is permitted by clause (f) of the definition of Permitted Investments. Pending the final application of any such Net Proceeds, DeCrane Aircraft may temporarily reduce Indebtedness or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, DeCrane Aircraft will be required to make an offer to all holders of notes (an "Asset Sale Offer") to purchase the maximum principal amount of notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, DeCrane Aircraft may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of notes surrendered by holders thereof in connection with an Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the notes to be purchased as set forth under "--Selection and Notice." Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. DeCrane Aircraft will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture relating to such Asset Sale Offer, DeCrane Aircraft will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof. 80 CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture provides that DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any other payment or distribution on account of DeCrane Aircraft's or any of its Restricted Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of DeCrane Aircraft or dividends or distributions payable to DeCrane Aircraft or any Wholly Owned Restricted Subsidiary of DeCrane Aircraft); (b) purchase, redeem or otherwise acquire or retire for value any Equity Interests of DeCrane Aircraft, any of its Restricted Subsidiaries or any other Affiliate of DeCrane Aircraft (other than any such Equity Interests owned by DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft); (c) make any principal payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value, any Indebtedness of DeCrane Aircraft that is subordinated in right of payment to the notes, except in accordance with the mandatory redemption or repayment provisions set forth in the original documentation governing such Indebtedness (but not pursuant to any mandatory offer to repurchase upon the occurrence of any event); or (d) make any Restricted Investment; (all such payments and other actions set forth in clauses (a) through (d) above being collectively referred to as "Restricted Payments"); unless, at the time of and after giving effect to such Restricted Payment: (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (ii) DeCrane Aircraft would, immediately after giving PRO FORMA effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under caption "--Incurrence of Indebtedness and Issuance of Preferred Stock"; and (iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by DeCrane Aircraft and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (a) (to the extent that the declaration of any dividend referred to therein reduces amounts available for Restricted Payments pursuant to this clause (iii)), (b) through (i), (k), (l), (o), (p) and (r) of the next succeeding paragraph), is less than the sum, without duplication, of (A) 50% of the Consolidated Net Income of DeCrane Aircraft for the period (taken as one accounting period) commencing October 1, 1998 to the end of DeCrane Aircraft's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (B) 100% of the Qualified Proceeds received by DeCrane Aircraft on or after the date of the Indenture from contributions to DeCrane Aircraft's capital or from the issue or sale on or after the date of the Indenture of Equity Interests of DeCrane Aircraft or of Disqualified Stock or convertible debt securities of DeCrane Aircraft to the extent that they have been converted into such Equity Interests (other than Equity Interests, Disqualified Stock or convertible debt securities 81 sold to a Subsidiary of DeCrane Aircraft and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (C) the amount equal to the net reduction in Investments in Persons after the date of the Indenture who are not Restricted Subsidiaries (other than Permitted Investments) resulting from (x) Qualified Proceeds received as a dividend, repayment of a loan or advance or other transfer of assets (valued at the fair market value thereof) to DeCrane Aircraft or any Restricted Subsidiary from such Persons, (y) Qualified Proceeds received upon the sale or liquidation of such Investment and (z) the redesignation of Unrestricted Subsidiaries (excluding any increase in the amount available for Restricted Payments pursuant to clause (j) or (n) below arising from the redesignation of such Restricted Subsidiary) whose assets are used or useful in, or which is engaged in, one or more Permitted Business as Restricted Subsidiaries (valued, proportionate to DeCrane Aircraft's equity interest in such Subsidiary, at the fair market value of the net assets of such Subsidiary at the time of such redesignation). The foregoing provisions will not prohibit: (a) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (b) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of DeCrane Aircraft (the "Retired Capital Stock") in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of DeCrane Aircraft) of, other Equity Interests of DeCrane Aircraft (other than any Disqualified Stock) (the "Refunding Capital Stock"), PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (iii)(B) of the preceding paragraph; (c) the defeasance, redemption, repurchase, retirement or other acquisition of subordinated Indebtedness of DeCrane Aircraft with the net cash proceeds from an incurrence of, or in exchange for, Permitted Refinancing Indebtedness; (d) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of DeCrane Aircraft or DeCrane Holdings held by any member of DeCrane Holdings' or DeCrane Aircraft's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement and any dividend to DeCrane Holdings to fund any such repurchase, redemption, acquisition or retirement, PROVIDED that (i) the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed (x) $4.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following clause (y)) of $7.0 million in any calendar year), plus (y) the aggregate cash proceeds received by DeCrane Aircraft during such calendar year from any reissuance of Equity Interests by DeCrane Aircraft or DeCrane Holdings to members of management of DeCrane Aircraft and its Restricted Subsidiaries and (ii) no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (e) payments and transactions in connection with the Acquisition, the Acquisition Financing, the Offering, the bank credit facility (including commitment, syndication and arrangement fees payable thereunder) and the application of the proceeds thereof (including the purchase of shares of Common Stock of DeCrane Aircraft and any payment therefor by way of dissenting rights or otherwise) and the payment of fees and expenses with respect thereto; (f) the payment of dividends or the making of loans or advances by DeCrane Aircraft to DeCrane Holdings not to exceed $3.0 million in any fiscal year for costs and expenses incurred by DeCrane Holdings in its capacity as a holding company or for services rendered by DeCrane Holdings on behalf of DeCrane Aircraft; 82 (g) payments or distributions to DeCrane Holdings pursuant to any Tax Sharing Agreement; (h) the payment of dividends by a Restricted Subsidiary on any class of common stock of such Restricted Subsidiary if (i) such dividend is paid pro rata to all holders of such class of common stock and (ii) at least 51% of such class of common stock is held by DeCrane Aircraft or one or more of its Restricted Subsidiaries; (i) the repurchase of any class of common stock of a Restricted Subsidiary if (i) such repurchase is made pro rata with respect to such class of common stock and (ii) at least 51% of such class of common stock is held by DeCrane Aircraft or one or more of its Restricted Subsidiaries; (j) any other Restricted Investment made in a Permitted Business which, together with all other Restricted Investments made pursuant to this clause (j) since the date of the Indenture, does not exceed $25.0 million (in each case, after giving effect to all subsequent reductions in the amount of any Restricted Investment made pursuant to this clause (j), either as a result of (i) the repayment or disposition thereof for cash or (ii) the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued proportionate to DeCrane Aircraft's equity interest in such Subsidiary at the time of such redesignation) at the fair market value of the net assets of such Subsidiary at the time of such redesignation), in the case of clause (i) and (ii), not to exceed the amount of such Restricted Investment previously made pursuant to this clause (j); PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after making such Restricted Investment; (k) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of DeCrane Aircraft or any Restricted Subsidiary issued on or after the date of the Indenture in accordance with the covenant described under the caption "-Incurrence of Indebtedness and Issuance of Preferred Stock"; PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after making such Restricted Payment; (l) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options; (m) the payment of dividends or distributions on DeCrane Aircraft's common stock, following the first public offering of DeCrane Aircraft's common stock or DeCrane Holdings' common stock after the date of the Indenture, of up to 6.0% per annum of (i) the net proceeds received by DeCrane Aircraft from such public offering of its common stock or (ii) the net proceeds received by DeCrane Aircraft from such public offering of DeCrane Holdings' common stock as common equity or preferred equity (other than Disqualified Stock), other than, in each case, with respect to public offerings with respect to DeCrane Aircraft's common stock or DeCrane Holdings' common stock registered on Form S-8; PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after any such payment of dividends or distributions; (n) any other Restricted Payment which, together with all other Restricted Payments made pursuant to this clause (n) since the date of the Indenture, does not exceed $10.0 million (in each case, after giving effect to all subsequent reductions in the amount of any Restricted Investment made pursuant to this clause (n) either as a result of (i) the repayment or disposition thereof for cash or (ii) the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued proportionate to DeCrane Aircraft's equity interest in such Subsidiary at the time of such redesignation) at the fair market value of the net assets of such Subsidiary at the time of such redesignation), in the case of clause (i) and (ii), not to exceed the amount of such Restricted Investment previously made pursuant to this clause (n); PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after making such Restricted Payment; (o) the pledge by DeCrane Aircraft of the Capital Stock of an Unrestricted Subsidiary of DeCrane Aircraft to secure Non-Recourse Debt of such Unrestricted Subsidiary; 83 (p) the purchase, redemption or other acquisition or retirement for value of any Equity Interests of any Restricted Subsidiary issued after the date of the Indenture, PROVIDED that the aggregate price paid for any such repurchased, redeemed, acquired or retired Equity Interests shall not exceed the sum of (i) the amount of cash and Cash Equivalents received by such Restricted Subsidiary from the issue or sale thereof and (ii) any accrued dividends thereon the payment of which would be permitted pursuant to clause (k) above; (q) any Investment in an Unrestricted Subsidiary that is funded by Qualified Proceeds received by DeCrane Aircraft on or after the date of the Indenture from contributions to DeCrane Aircraft's capital or from the issue and sale on or after the date of the Indenture of Equity Interests of DeCrane Aircraft or of Disqualified Stock or convertible debt securities to the extent they have been converted into such Equity Interests (other than Equity Interests, Disqualified Stock or convertible debt securities sold to a Subsidiary of DeCrane Aircraft and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock) in an amount (measured at the time such Investment is made and without giving effect to subsequent changes in value) that does not exceed the amount of such Qualified Proceeds; and (r) distributions or payments of Receivables Fees. The board of directors of DeCrane Aircraft may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such designation, all outstanding Investments by DeCrane Aircraft and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Restricted Investments in an amount equal to the greater of (i) the net book value of such Investments at the time of such designation and (ii) the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Investment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of (i) all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by DeCrane Aircraft or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment and (ii) Qualified Proceeds (other than cash) shall be the fair market value on the date of receipt thereof by DeCrane Aircraft of such Qualified Proceeds. The fair market value of any non-cash Restricted Payment shall be determined by the board of directors of DeCrane Aircraft whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, DeCrane Aircraft shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK The Indenture provides that (a) DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Indebtedness), (b) DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, issue any shares of Disqualified Stock and (c) DeCrane Aircraft will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED that DeCrane Aircraft or any Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for DeCrane Aircraft's most recently ended four full fiscal quarters for which internal financial statements are 84 available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a consolidated PRO FORMA basis (including a PRO FORMA application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (i) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries of Indebtedness under the bank credit facility; PROVIDED that the aggregate principal amount of all Indebtedness (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of DeCrane Aircraft and such Restricted Subsidiaries thereunder) then classified as having been incurred in reliance upon this clause (i) that remains outstanding under the bank credit facility after giving effect to such incurrence does not exceed an amount equal to $150.0 million; (ii) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries of Existing Indebtedness; (iii) the incurrence by DeCrane Aircraft of Indebtedness represented by the notes and the Indenture and by the Guarantors of Indebtedness represented by the Note Guarantees; (iv) the incurrence by DeCrane Aircraft and its Restricted Subsidiaries of Indebtedness denominated in Swiss francs (or a European common currency as a result of the implementation of European Monetary Union and the cessation of use of Swiss francs as the lawful currency of Switzerland) in an aggregate principal amount (or accreted value, as applicable) not to exceed $4.0 million outstanding after giving effect to such incurrence; (v) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries of Indebtedness represented by Capital Expenditure Indebtedness, Capital Lease Obligations or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of DeCrane Aircraft or such Restricted Subsidiary, in an aggregate principal amount (or accreted value, as applicable) not to exceed $15.0 million outstanding after giving effect to such incurrence; (vi) Indebtedness arising from agreements of DeCrane Aircraft or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; PROVIDED that (A) such Indebtedness is not reflected on the balance sheet of DeCrane Aircraft or any Restricted Subsidiary (contingent obligations referred to in a footnote or footnotes to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (A)) and (B) the maximum assumable liability in respect of such Indebtedness shall at no time exceed the gross proceeds including non-cash proceeds (the fair market value of such non-cash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by DeCrane Aircraft and/or such Restricted Subsidiary in connection with such disposition; (vii) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred; (viii) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries of intercompany Indebtedness between or among DeCrane Aircraft and/or any of its Restricted Subsidiaries; PROVIDED 85 that (i) if DeCrane Aircraft is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than DeCrane Aircraft or a Restricted Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either DeCrane Aircraft or a Restricted Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by DeCrane Aircraft or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (viii); (ix) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging (A) interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding and (B) exchange rate risk with respect to agreements or Indebtedness of such Person payable denominated in a currency other than U.S. dollars, PROVIDED that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder; (x) the guarantee by DeCrane Aircraft or any of its Restricted Subsidiaries of Indebtedness of DeCrane Aircraft or a Restricted Subsidiary of DeCrane Aircraft that was permitted to be incurred by another provision of this covenant; (xi) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries of Acquired Indebtedness in an aggregate principal amount (or accreted value, as applicable) not to exceed $10.0 million outstanding after giving effect to such incurrence; (xii) obligations in respect of performance and surety bonds and completion guarantees provided by DeCrane Aircraft or any Restricted Subsidiary in the ordinary course of business; and (xiii) the incurrence by DeCrane Aircraft or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) outstanding after giving effect to such incurrence, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (xiii), not to exceed $20.0 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (i) through (xiii) above or is entitled to be incurred pursuant to the first paragraph of this covenant, DeCrane Aircraft shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. In addition, DeCrane Aircraft may, at any time, change the classification of an item of Indebtedness (or any portion thereof) to any other clause or to the first paragraph hereof PROVIDED that DeCrane Aircraft would be permitted to incur such item of Indebtedness (or such portion thereof) pursuant to such other clause or the first paragraph hereof, as the case may be, at such time of reclassification. Accrual of interest, accretion or amortization of original issue discount will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. All Indebtedness under the bank credit facility outstanding on the date of the Indenture shall be deemed to have been incurred on such date in reliance on the first paragraph of the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." As a result, DeCrane Aircraft will be permitted to incur significant additional secured indebtedness under clause (i) of the definition of "Permitted Indebtedness." See "Risk Factors-- Substantial Leverage." 86 LIENS The Indenture provides that DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien, other than a Permitted Lien, that secures obligations under any Pari Passu Indebtedness or subordinated Indebtedness of DeCrane Aircraft on any asset or property now owned or hereafter acquired by DeCrane Aircraft or any of its Restricted Subsidiaries, or any income or profits therefrom or assign or convey any right to receive income therefrom, unless the notes are equally and ratably secured with the obligations so secured until such time as such obligations are no longer secured by a Lien; PROVIDED that, in any case involving a Lien securing subordinated Indebtedness of DeCrane Aircraft, such Lien is subordinated to the Lien securing the notes to the same extent that such subordinated Indebtedness is subordinated to the notes. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES The Indenture provides that DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a) (i) pay dividends or make any other distributions to DeCrane Aircraft or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any Indebtedness owed to DeCrane Aircraft or any of its Restricted Subsidiaries, (b) make loans or advances to DeCrane Aircraft or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to DeCrane Aircraft or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of the Indenture, (b) the bank credit facility as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, (c) the Indenture and the notes, (d) applicable law and any applicable rule, regulation or order, (e) any agreement or instrument of a Person acquired by DeCrane Aircraft or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent created in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (f) customary non-assignment provisions in leases and contracts entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (e) above on the property so acquired, (h) contracts for the sale of assets, including, without limitation, customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, 87 (i) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are, in the good faith judgment of DeCrane Aircraft's board of directors, not materially less favorable, taken as a whole, to the holders of the notes than those contained in the agreements governing the Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted to be incurred pursuant to the covenants described under "--Incurrence of Indebtedness and Issuance of Preferred Stock" and "--Liens" that limit the right of the debtor to dispose of the assets securing such Indebtedness, (k) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, (l) other Indebtedness or Disqualified Stock of Restricted Subsidiaries permitted to be incurred subsequent to the Issuance Date pursuant to the provisions of the covenant described under "--Incurrence of Indebtedness and Issuance of Preferred Stock", (m) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business, and (n) restrictions created in connection with any Receivables Facility that, in the good faith determination of the board of directors of DeCrane Aircraft, are necessary or advisable to effect such Receivables Facility. MERGER, CONSOLIDATION, OR SALE OF ASSETS The Indenture provides that DeCrane Aircraft may not consolidate or merge with or into (whether or not DeCrane Aircraft is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (a) DeCrane Aircraft is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than DeCrane Aircraft) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia, (b) the Person formed by or surviving any such consolidation or merger (if other than DeCrane Aircraft) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of DeCrane Aircraft under the Registration Rights Agreement, the notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, (c) immediately after such transaction no Default or Event of Default exists and (d) DeCrane Aircraft or the Person formed by or surviving any such consolidation or merger (if other than DeCrane Aircraft), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (i) will, at the time of such transaction and after giving PRO FORMA effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" or (ii) would (together with its Restricted Subsidiaries) have a higher Fixed Charge Coverage Ratio immediately after such transaction (after giving PRO FORMA effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period) than the Fixed Charge Coverage Ratio of DeCrane Aircraft and its Restricted Subsidiaries immediately prior to such transaction. 88 The foregoing clause (d) will not prohibit (a) a merger between DeCrane Aircraft and a Wholly Owned Subsidiary of DeCrane Holdings created for the purpose of holding the Capital Stock of DeCrane Aircraft, (b) a merger between DeCrane Aircraft and a Wholly Owned Restricted Subsidiary or (c) a merger between DeCrane Aircraft and an Affiliate incorporated solely for the purpose of reincorporating DeCrane Aircraft in another State of the United States so long as, in each case, the amount of Indebtedness of DeCrane Aircraft and its Restricted Subsidiaries is not increased thereby. The Indenture provides that DeCrane Aircraft will not lease all or substantially all of its assets to any Person. TRANSACTIONS WITH AFFILIATES The Indenture provides that DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of DeCrane Aircraft (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to DeCrane Aircraft or such Restricted Subsidiary than those that would have been obtained in a comparable transaction by DeCrane Aircraft or such Restricted Subsidiary with an unrelated Person and (b) DeCrane Aircraft delivers to the Trustee, with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, either (i) a resolution of the board of directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the board of directors or (ii) an opinion as to the fairness to the holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (a) customary directors' fees, indemnification or similar arrangements or any employment agreement or other compensation plan or arrangement entered into by DeCrane Aircraft or any of its Restricted Subsidiaries in the ordinary course of business (including ordinary course loans to employees not to exceed (i) $5.0 million outstanding in the aggregate at any time and (ii) $2.0 million to any one employee) and consistent with the past practice of DeCrane Aircraft or such Restricted Subsidiary; (b) transactions between or among DeCrane Aircraft and/or its Restricted Subsidiaries; (c) payments of customary fees by DeCrane Aircraft or any of its Restricted Subsidiaries to DLJMB and its Affiliates made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which are approved by a majority of the board of directors in good faith; (d) any agreement as in effect on the date of the Indenture or any amendment thereto (so long as such amendment is not disadvantageous to the holders of the notes in any material respect) or any transaction contemplated thereby; 89 (e) payments and transactions in connection with the Acquisition, the bank credit facility and the Bridge notes (including commitment, syndication and arrangement fees payable thereunder) and the Offering (including discounts and commissions in connection therewith) and the application of the proceeds thereof, and the payment of the fees and expenses with respect thereto; (f) Restricted Payments that are permitted by the provisions of the Indenture described under the caption "--Restricted Payments" and any Permitted Investments; (g) payments and transactions in connection with the GTP Investment, and the payment of fees and expenses with respect thereto; and (h) sales of accounts receivable, or participations therein, in connection with any Receivables Facility. SALE AND LEASEBACK TRANSACTIONS The Indenture provides that DeCrane Aircraft will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; PROVIDED that DeCrane Aircraft or any Restricted Subsidiary may enter into a sale and leaseback transaction if (a) DeCrane Aircraft or such Restricted Subsidiary, as the case may be, could have (i) incurred Indebtedness in an amount equal to the Attributable Indebtedness relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described under the caption "--Incurrence of Indebtedness and Issuance of Preferred Stock" and (ii) incurred a Lien to secure such Indebtedness pursuant to the covenant described under the caption "--Liens," (b) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the board of directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (c) the transfer of assets in such sale and leaseback transaction is permitted by, and DeCrane Aircraft applies the proceeds of such transaction in compliance with, the covenant described under the caption "Repurchase at the Option of Holders--Asset Sales." NO SENIOR SUBORDINATED INDEBTEDNESS The Indenture provides that (i) DeCrane Aircraft will not Incur any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the notes and (ii) no Guarantor will Incur any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Note Guarantees. ADDITIONAL NOTE GUARANTEES The Indenture provides that, if any Wholly-Owned Restricted Subsidiary of DeCrane Aircraft that is a Domestic Subsidiary guarantees any Indebtedness under the bank credit facility, then such Restricted Subsidiary shall become a Guarantor and execute a Supplemental Indenture and deliver an Opinion of Counsel, in accordance with the terms of the Indenture. ACCOUNTS RECEIVABLE FACILITY The Indenture provides that no Accounts Receivable Subsidiary will incur any Indebtedness if immediately after giving effect to such incurrence the aggregate outstanding Indebtedness of all 90 Accounts Receivable Subsidiaries (excluding any Indebtedness owed to DeCrane Aircraft or any Restricted Subsidiary) would exceed $60.0 million. REPORTS The Indenture provides that, whether or not required by the rules and regulations of the Securities and Exchange Commission (the "SEC"), so long as any notes are outstanding, DeCrane Aircraft will furnish to the holders of notes (a) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if DeCrane Aircraft were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by DeCrane Aircraft's certified independent accountants (PROVIDED that DeCrane Aircraft may deliver financial information with respect to its (direct or indirect) parent if DeCrane Aircraft delivers to the Trustee an Officer's Certificate certifying that such financial information is substantially equivalent to the financial information with respect to DeCrane Aircraft) and (b) all current reports that would be required to be filed with the SEC on Form 8-K if DeCrane Aircraft were required to file such reports, in each case, within the time periods specified in the SEC's rules and regulations. In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the SEC, DeCrane Aircraft will file a copy of all such information and reports with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, DeCrane Aircraft and the Guarantors have agreed that, for so long as any notes remain outstanding, they will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (a) default for 30 days in the payment when due of interest on the notes (whether or not prohibited by the subordination provisions of the Indenture); (b) default in payment when due of the principal of or premium, if any, on the notes (whether or not prohibited by the subordination provisions of the Indenture); (c) failure by DeCrane Aircraft or any of its Restricted Subsidiaries for 30 days after receipt of notice from the Trustee or holders of at least 25% in principal amount of the notes then outstanding to comply with the provisions described under the captions "Repurchase at the Option of Holders--Change of Control," "--Asset Sales," "Certain Covenants--Restricted Payments," "--Incurrence of Indebtedness and Issuance of Preferred Stock" or "Merger, Consolidation or Sale of Assets"; (d) failure by DeCrane Aircraft for 60 days after notice from the Trustee or the holders of at least 25% in principal amount of the notes then outstanding to comply with any of its other agreements in the Indenture or the notes; (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by DeCrane Aircraft or any of its Restricted Subsidiaries (or the payment of which is guaranteed by DeCrane 91 Aircraft or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (i) is caused by a failure to pay Indebtedness at its stated final maturity (after giving effect to any applicable grace period provided in such Indebtedness) (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its stated final maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more; (f) failure by DeCrane Aircraft or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million (net of any amounts with respect to which a reputable and creditworthy insurance company has acknowledged liability in writing), which judgments are not paid, discharged or stayed for a period of 60 days; (g) except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting of behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and (h) certain events of bankruptcy or insolvency with respect to DeCrane Aircraft or any of its Restricted Subsidiaries that is a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately; PROVIDED that, so long as any Indebtedness permitted to be incurred pursuant to the bank credit facility shall be outstanding, such acceleration shall not be effective until the earlier of (a) an acceleration of any such Indebtedness under the bank credit facility or (b) five business days after receipt by DeCrane Aircraft and the administrative agent under the bank credit facility of written notice of such acceleration. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to DeCrane Aircraft or any Significant Subsidiary, all outstanding notes will become due and payable without further action or notice. holders of the notes may not enforce the Indenture or the notes except as provided in the Indenture. In the event of a declaration of acceleration of the notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (e) of the preceding paragraph, the declaration of acceleration of the notes shall be automatically annulled if the holders of any Indebtedness described in clause (e) have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days of the date of such declaration and if (i) the annulment of the acceleration of the notes would not conflict with any judgment or decree of a court of competent jurisdiction and (ii) all existing Events of Default, except non-payment of principal or interest on the notes that became due solely because of the acceleration of the notes, have been cured or waived. Subject to certain limitations, holders of a majority in principal amount of the then outstanding notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The holders of a majority in aggregate principal amount of the notes then outstanding by notice to the Trustee may on behalf of the holders of all of the notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the notes. 92 DeCrane Aircraft is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and DeCrane Aircraft is required upon becoming aware of any Default or Event of Default to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF MEMBER, DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No member, director, officer, employee, incorporator or stockholder of DeCrane Aircraft, as such, shall have any liability for any obligations of DeCrane Aircraft under the notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. Such waiver may not be effective to waive liabilities under the federal securities laws, and it is the view of the SEC that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE DeCrane Aircraft may, at its option and at any time, elect to have all of its and the Guarantors' obligations discharged with respect to the outstanding notes, the Note Guarantees and the Indenture ("Legal Defeasance") except for (a) the rights of holders of outstanding notes to receive payments in respect of the principal of, premium, if any, and interest on such notes when such payments are due from the trust referred to below, (b) DeCrane Aircraft's obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust, (c) the rights, powers, trusts, duties and immunities of the Trustee, and DeCrane Aircraft's obligations in connection therewith and (d) the Legal Defeasance provisions of the Indenture. In addition, DeCrane Aircraft may, at its option and at any time, elect to have their obligations released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "--Events of Default and Remedies" will no longer constitute an Event of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (a) DeCrane Aircraft must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding notes on the stated maturity or on the applicable redemption date, as the case may be, and DeCrane Aircraft must specify whether the notes are being defeased to maturity or to a particular redemption date, (b) in the case of Legal Defeasance, DeCrane Aircraft shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (i) DeCrane Aircraft has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, subject to customary assumptions and exclusions, the holders of the outstanding 93 notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred, (c) in the case of Covenant Defeasance, DeCrane Aircraft shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred, (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or, insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 123rd day after the date of deposit, (e) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which DeCrane Aircraft or any of its Subsidiaries is a party or by which DeCrane Aircraft or any of its Subsidiaries is bound, (f) DeCrane Aircraft must have delivered to the Trustee an opinion of counsel to the effect that, subject to customary assumptions and exclusions, after the 123rd day following the deposit, the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or any analogous New York State law provision or any other applicable federal or New York bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, (g) DeCrane Aircraft must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by DeCrane Aircraft with the intent of preferring the holders of notes over the other creditors of DeCrane Aircraft with the intent of defeating, hindering, delaying or defrauding creditors of DeCrane Aircraft or others, and (h) DeCrane Aircraft must deliver to the Trustee an Officers' Certificate and an opinion of counsel (which opinion may be subject to customary assumptions and exclusions), each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A holder may transfer or exchange notes in accordance with the Indenture. The Registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and DeCrane Aircraft may require a holder to pay any taxes and fees required by law or permitted by the Indenture. DeCrane Aircraft are not required to transfer or exchange any Note selected for redemption. Also, DeCrane Aircraft is not required to transfer or exchange any Note for a period of 15 days before a selection of notes to be redeemed. The registered holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture, the Note Guarantees and the notes may be amended or supplemented with the consent of the holders of at least a majority in principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing default or compliance with any provision of the Indenture, the Note Guarantees or the notes may be waived with 94 the consent of the holders of a majority in principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes). Without the consent of each holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting holder) (a) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver, (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the notes (other than the provisions described under the caption "--Repurchase at the Option of holders"), (c) reduce the rate of or extend the time for payment of interest on any Note, (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration), (e) make any Note payable in money other than that stated in the notes, (f) make any change in the provisions of the Indenture relating to waivers of past Defaults, (g) waive a redemption payment with respect to any Note (other than the provisions described under the caption "--Repurchase at the Option of Holders"), (h) release any Guarantor from its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture or (i) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, any (i) amendment to or waiver of the covenant described under the caption "-- Repurchase at the Option of Holders--Change of Control," and (ii) amendment to Article 10 of the Indenture (which relates to subordination) will require the consent of the holders of at least two-thirds in aggregate principal amount of the notes then outstanding if such amendment would materially adversely affect the rights of holders of notes. Notwithstanding the foregoing, without the consent of any holder of notes, DeCrane Aircraft, the Guarantors and the Trustee may amend or supplement the Indenture, the Note Guarantees or the notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated notes in addition to or in place of certificated notes, to provide for the assumption of DeCrane Aircraft's obligations to holders of notes in the case of a merger or consolidation or sale of all or substantially all of DeCrane Aircraft's assets, to make any change that would provide any additional rights or benefits to the holders of notes or that does not materially adversely affect the legal rights under the Indenture of any such holder, or to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act or to provide for guarantees of the notes. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of any Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign. 95 The holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. REGISTRATION RIGHTS; LIQUIDATED DAMAGES We are conducting this exchange offer, and filing the registration statement of which this Prospectus is part, in order to comply with our obligations under the Registration Rights Agreement which we entered into with the Initial Purchaser at the time of the DLJ acquisition. If we are not permitted to complete this exchange offer, because it is not permitted by applicable law or SEC policy, or any holder of the old notes (or certain new notes bearing transfer restrictions) notifies us of certain restrictions on its participation in the exchange offer within 20 business days of the completion of this exchange offer, we will file with the SEC a Shelf Registration Statement to cover resales of the notes by holders who satisfy certain conditions relating to the provision of information. The Registration Rights Agreement requires that we file the registration statement of which this Prospectus is part, within 120 days after October 5, 1998; use our reasonable best efforts to have it declared effective by the SEC within 180 days after October 5, 1998; unless not permitted by applicable law or SEC policy, commence the Exchange Offer and use our reasonable best efforts to issue the new notes, within 30 business days after the effective date of the foregoing registration statement; and, if obligated to file a shelf registration statement because certain parties cannot register their notes in connection with the Exchange Offer, file it within 120 days after such obligation arises, and use our reasonable best efforts to cause it to be declared effective within 180 days after that date. If (a) we fail to file any of the registration statements required by the Registration Rights Agreement when required, (b) any of those registration statements is not declared effective by the SEC by the deadlines specified above, (c) we fail to complete this exchange offer within 40 business days of the deadline for filing the related registration statement, or (d) any required registration statement declared effective but thereafter ceases to be effective or usable as contemplated by the Registration Rights Agreement, we are in default of the Registration Rights Agreement (herein, a "Registration Default"). We are required under the terms of the old notes and the Registration Rights Agreement to pay "Liquidated Damages" to each holder of notes, with respect to the first 90-day period immediately following the occurrence of the first Registration Default in an amount equal to $.05 per week per $1,000 principal amount of notes held by such holder. The amount of the Liquidated Damages will increase by an additional $.05 per week per $1,000 principal amount of notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages for all Registration Defaults of $.25 per week per $1,000 principal amount of notes. All accrued Liquidated Damages will be paid by us on each Damages Payment Date to the Global Note holder by wire transfer of immediately available funds or by federal funds check and to holders of Certificated Securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Holders of notes will be required to make certain representations to DeCrane Aircraft and the Guarantors (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver certain information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their notes included in the 96 Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above with respect to the Shelf Registration Statement. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACCOUNTS RECEIVABLE SUBSIDIARY" means an Unrestricted Subsidiary of DeCrane Aircraft to which DeCrane Aircraft or any of its Restricted Subsidiaries sells any of its accounts receivable pursuant to a Receivables Facility. "ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (a) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien encumbering an asset acquired by such specified Person at the time such asset is acquired by such specified Person. "ACQUISITION" means the acquisition by an indirect subsidiary of DeCrane Holdings of at least majority of the outstanding stock of DeCrane Aircraft, the merger of such subsidiary into DeCrane Aircraft, the repayment of certain indebtedness of DeCrane Aircraft, the payment of certain related fees and expenses and the Finance Merger. "ACQUISITION FINANCING" means (i) the issuance and sale by DeCrane Aircraft of the notes, (ii) the execution and delivery by DeCrane Aircraft (or its predecessor) and certain of its subsidiaries of the bank credit facility and the borrowing thereunder and the issuance and sale by DeCrane Aircraft (or its predecessor) of bridge notes to finance the Acquisition and (iii) the issuance and sale by DeCrane Holdings of common stock and preferred stock for consideration, the proceeds of each of which were used to fund the purchase price for the Acquisition. "AFFILIATE" of any specified Person means any other Person which, directly or indirectly, controls, is controlled by or is under direct or indirect common control with, such specified Person. For purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSET SALE" means (a) the sale, lease, conveyance, disposition or other transfer (a "disposition") of any properties, assets or rights (including, without limitation, by way of a sale and leaseback) (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of DeCrane Aircraft and its Subsidiaries taken as a whole will be governed by the provisions of the Indenture described under the caption "-- Change of Control" and/or the provisions described under the caption "-- Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (b) the issuance, sale or transfer by DeCrane Aircraft or any of its Restricted Subsidiaries of Equity Interests of any of DeCrane Aircraft's Restricted Subsidiaries, in the case of either clause (a) or (b), whether in a single transaction or a series of related transactions (i) that have a fair market value in excess of $5.0 million or (ii) for net proceeds in excess of $5.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (a) dispositions in the ordinary course of business; (b) a disposition of assets by DeCrane Aircraft to a Restricted Subsidiary or by a Restricted Subsidiary to DeCrane Aircraft or to another Restricted Subsidiary; (c) a disposition of Equity Interests by a Restricted Subsidiary to DeCrane Aircraft or to another Restricted Subsidiary; (d) the sale and leaseback of any assets within 90 days of the acquisition thereof; (e) foreclosures on 97 assets; (f) any exchange of like property pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, for use in a Permitted Business; (g) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (h) a Permitted Investment or a Restricted Payment that is permitted by the covenant described under the caption "--Restricted Payments"; and (i) sales of accounts receivable, or participations therein, in connection with any Receivables Facility. "ATTRIBUTABLE INDEBTEDNESS" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "BANK CREDIT FACILITY" means that certain Credit Agreement, dated as of August 28, 1998 among DeCrane Aircraft, various financial institutions party thereto, DLJ Capital Funding, Inc., as syndication agent, and The First National Bank of Chicago, as administrative agent, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, modified, renewed, refunded, replaced or refinanced from time to time, including any agreement (i) extending or shortening the maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder, PROVIDED that on the date such Indebtedness is incurred it would not be prohibited by clause (i) of "--Incurrence of Indebtedness and Issuance of Preferred Stock" or (iv) otherwise altering the terms and conditions thereof. Indebtedness under the bank credit facility outstanding on the date of the Indenture shall be deemed to have been incurred on such date in reliance on the first paragraph of the covenant described under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." "CAPITAL EXPENDITURE INDEBTEDNESS" means Indebtedness incurred by any Person to finance the purchase or construction or any property or assets acquired or constructed by such Person which have a useful life or more than one year so long as (a) the purchase or construction price for such property or assets is included in "addition to property, plant or equipment" in accordance with GAAP, (b) the acquisition or construction of such property or assets is not part of any acquisition of a Person or line of business and (c) such Indebtedness is incurred within 90 days of the acquisition or completion of construction of such property or assets. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (i) Government Securities, (ii) any certificate of deposit maturing not more than 365 days after the date of acquisition issued by, or demand deposit or time deposit of, an Eligible Institution or any lender under the bank credit facility, (iii) commercial paper maturing not more than 365 days after the date of acquisition of an issuer (other than an Affiliate of DeCrane Aircraft) with a rating, at the time as of which any investment therein is made, of "A-3" (or higher) according to S&P or "P-2" (or higher) according to Moody's or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments, (iv) any bankers acceptances of money market deposit accounts issued by an Eligible 98 Institution and (v) any fund investing exclusively in investments of the types described in clauses (i) through (iv) above and (vi) in the case of any Subsidiary organized or having its principal place of business outside the United States, investments denominated in the currency of the jurisdiction in which such Subsidiary is organized or has its principal place of business which are similar to the items specified in clauses (i) through (v) above (including without limitation any deposit with any bank that is a lender to any such Subsidiary). "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus, to the extent deducted in computing Consolidated Net Income, (a) an amount equal to any extraordinary or non-recurring loss plus any net loss realized in connection with an Asset Sale, (b) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, (c) Fixed Charges of such Person for such period, (d) depreciation, amortization (including amortization of goodwill and other intangibles) and all other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period), including charges related to non-cash minority interests, of such Person and its Restricted Subsidiaries for such period, (e) net periodic post-retirement benefits, (f) other income or expense net as set forth on the face of such Person's statement of operations, (g) expenses and charges related to the Acquisition, the bank credit facility and the application of the proceeds thereof which are paid, taken or otherwise accounted for within 180 days of the consummation of the Acquisition, and (h) any non-capitalized transaction costs incurred in connection with actual or proposed financings, acquisition or divestitures (including, but not limited to, financing and refinancing fees and costs incurred in connection with the Acquisition), in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, the Fixed Charges of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person. "CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any period, the sum of, without duplication, (a) the interest expense of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP (including amortization of original issue discount, non-cash interest payments, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments, if any, pursuant to Hedging Obligations; PROVIDED that in no event shall any amortization of deferred financing costs be included in Consolidated Interest Expense); and (b) the consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued; PROVIDED, however, that Receivables Fees shall be deemed not to constitute Consolidated Interest Expense. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary shall be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED that (a) the Net Income (or loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (b) the Net Income (or loss) of any Restricted Subsidiary other than a Subsidiary organized or having its principal place of business outside the United States 99 shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income (or loss) is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary, (c) the Net Income (or loss) of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (d) the cumulative effect of a change in accounting principles shall be excluded and (e) expenses and charges related to the Acquisition, the bank credit facility and the application of the proceeds thereof which are paid, taken or otherwise accounted for within 180 days of the consummation of the Acquisition shall be excluded. "DECRANE HOLDINGS" means DeCrane Holdings Co., a Delaware corporation, the corporate parent of DeCrane Aircraft, or its successors. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DESIGNATED NONCASH CONSIDERATION" means the fair market value of non-cash consideration received by DeCrane Aircraft or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate, setting forth the basis of such valuation, executed by the principal executive officer and the principal financial officer of DeCrane Aircraft, less the amount of cash or Cash Equivalents received in connection with a sale of such Designated Noncash Consideration. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable), or upon the happening of any event (other than any event solely within the control of the issuer thereof), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is exchangeable for Indebtedness (except to the extent exchangeable at the option of such Person subject to the terms of any debt instrument to which such Person is a party) or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date on which the notes mature; PROVIDED that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require DeCrane Aircraft to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that DeCrane Aircraft may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described under the caption "--Certain Covenants--Restricted Payments," and PROVIDED further that, if such Capital Stock is issued to any plan for the benefit of employees of DeCrane Aircraft or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by DeCrane Aircraft in order to satisfy applicable statutory or regulatory obligations. "DLJMB" means DLJ Merchant Banking Partners II, L.P. and its Affiliates. "DOMESTIC SUBSIDIARY" means a Subsidiary that is organized under the laws of the United States or any State, district or territory thereof other than Audio International Sales, Inc., a U.S. Virgin Islands corporation. "ELIGIBLE INSTITUTION" means a commercial banking institution that has combined capital and surplus not less than $100.0 million or its equivalent in foreign currency, whose short-term debt is rated "A-3" or higher according to Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments. 100 "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EXISTING INDEBTEDNESS" means Indebtedness of DeCrane Aircraft and its Restricted Subsidiaries (other than Indebtedness under the bank credit facility) in existence on the date of the Indenture, until such amounts are repaid. "FINANCE MERGER" means the merger of DeCrane Finance Co. with and into DeCrane Aircraft. "FIXED CHARGES" means, with respect to any Person for any period, the sum, without duplication, of (a) the Consolidated Interest Expense of such Person for such period and (b) all dividend payments on any series of preferred stock of such Person (other than dividends payable solely in Equity Interests that are not Disqualified Stock), in each case, on a consolidated basis and in accordance with GAAP. "FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period (exclusive of amounts attributable to discontinued operations, as determined in accordance with GAAP, or operations and businesses disposed of prior to the Calculation Date (as defined)) to the Fixed Charges of such Person for such period (exclusive of amounts attributable to discontinued operations, as determined in accordance with GAAP, or operations and businesses disposed of prior to the Calculation Date). In the event that the referent Person or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving PRO FORMA effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, acquisitions that have been made by DeCrane Aircraft or any of its Subsidiaries, including all mergers or consolidations and any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated to include the Consolidated Cash Flow of the acquired entities on a PRO FORMA basis after giving effect to cost savings resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation practices, consolidation of property, casualty and other insurance coverage and policies, standardization of sales and distribution methods, reductions in taxes other than income taxes and other cost savings reasonably expected to be realized from such acquisition, as determined in good faith by the principal financial officer of DeCrane Aircraft (regardless of whether such cost savings could then be reflected in PRO FORMA financial statements under GAAP, Regulation S-X promulgated by the SEC or any other regulation or policy of the SEC) and without giving effect to clause (c) of the proviso set forth in the definition of Consolidated Net Income. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture. "GTP" means Global Technology Partners, LLC and its Affiliates. "GTP INVESTMENT" means the sale by DeCrane Holdings to GTP of its common stock, the purchase price of which will be partially financed by the GTP Loan, and the granting by DeCrane Holdings to GTP of options to purchase shares of its common stock. 101 "GTP LOANS" means one or more loans by DeCrane Aircraft or DeCrane Holdings to GTP to finance GTP's purchase of common stock of DeCrane Holdings; provided, however, that the aggregate principal amount of all such GTP Loans outstanding at any time shall not exceed $2 million. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "GUARANTORS" means (i) each of the Domestic Subsidiaries of DeCrane Aircraft that is a Wholly Owned Restricted Subsidiary on the date of the Indenture and (ii) any other Subsidiary that executes a Note Guarantee in accordance with the provisions of the Indenture. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates and (c) agreements or arrangements designed to protect such Person against fluctuations in exchange rates. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any Indebtedness of any other Person, PROVIDED that Indebtedness shall not include the pledge by DeCrane Aircraft of the Capital Stock of an Unrestricted Subsidiary of DeCrane Aircraft to secure Non-Recourse Debt of such Unrestricted Subsidiary. The amount of any Indebtedness outstanding as of any date shall be (a) the accreted value thereof (together with any interest thereon that is more than 30 days past due), in the case of any Indebtedness that does not require current payments of interest, and (b) the principal amount thereof, in the case of any other Indebtedness; PROVIDED that the principal amount of any Indebtedness that is denominated in any currency other than United States dollars shall be the amount thereof, as determined pursuant to the foregoing provision, converted into United States dollars at the Spot Rate in effect on the date that such Indebtedness was incurred (or, if such indebtedness was incurred prior to the date of the Indenture, the Spot Rate in effect on the date of the Indenture). "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees by the referent Person of, and Liens on any assets of the referent Person securing, Indebtedness or other obligations of other Persons), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP, PROVIDED that an investment by DeCrane Aircraft for consideration consisting of common equity securities of DeCrane Aircraft shall not be deemed to be an Investment. If DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of DeCrane Aircraft such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of DeCrane Aircraft, DeCrane Aircraft shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair 102 market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described under the caption "--Restricted Payments." "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "MANAGEMENT LOANS" means one or more loans by DeCrane Aircraft or DeCrane Holdings to officers and/or directors of DeCrane Aircraft and any of its Restricted Subsidiaries to finance the purchase by such officers and directors of common stock of DeCrane Holdings; PROVIDED, however, that the aggregate principal amount of all such Management Loans outstanding at any time shall not exceed $5.0 million. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (a) any gain (or loss), together with any related provision for taxes on such gain (or loss), realized in connection with (i) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (ii) the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (b) any extraordinary or nonrecurring gain (or loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (or loss). "NET PROCEEDS" means the aggregate cash proceeds received by DeCrane Aircraft or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of, without duplication, (a) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions, recording fees, title transfer fees and appraiser fees and cost of preparation of assets for sale) and any relocation expenses incurred as a result thereof, (b) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (c) amounts required to be applied to the repayment of Indebtedness (other than revolving credit Indebtedness incurred pursuant to the bank credit facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and (d) any reserve established in accordance with GAAP or any amount placed in escrow, in either case for adjustment in respect of the sale price of such asset or assets until such time as such reserve is reversed or such escrow arrangement is terminated, in which case Net Proceeds shall include only the amount of the reserve so reversed or the amount returned to DeCrane Aircraft or its Restricted Subsidiaries from such escrow arrangement, as the case may be. "NON-RECOURSE DEBT" means Indebtedness (i) no default with respect to, which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of DeCrane Aircraft or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (ii) as to which the lenders have been notified in writing that they will not have any recourse to the stock (other than the stock of an Unrestricted Subsidiary pledged by DeCrane Aircraft to secure debt of such Unrestricted Subsidiary) or assets of DeCrane Aircraft or any of its Restricted Subsidiaries; PROVIDED that in no event shall Indebtedness of any Unrestricted Subsidiary fail to be Non-Recourse Debt solely as a result of any default provisions contained in a guarantee thereof by DeCrane Aircraft or any of its Restricted Subsidiaries if DeCrane Aircraft or such Restricted Subsidiary was otherwise permitted to incur such guarantee pursuant to the Indenture. 103 "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFERING" means the offering of the notes by DeCrane Aircraft. "PARI PASSU INDEBTEDNESS" means Indebtedness of DeCrane Aircraft that ranks PARI PASSU in right of payment to the notes. "PERMITTED BUSINESS" means the avionics manufacturing industry and any business in which DeCrane Aircraft and its Restricted Subsidiaries are engaged on the date of the Indenture or any business reasonably related, incidental or ancillary thereto. "PERMITTED INVESTMENTS" means (a) any Investment in DeCrane Aircraft or in a Restricted Subsidiary of DeCrane Aircraft, (b) any Investment in cash or Cash Equivalents, (c) any Investment by DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of DeCrane Aircraft or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, DeCrane Aircraft or a Wholly Owned Restricted Subsidiary of DeCrane Aircraft, (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described under the caption "-Repurchase at the Option of Holders-Asset Sales," (e) any Investment acquired solely in exchange for Equity Interests (other than Disqualified Stock) of DeCrane Aircraft, (f) any Investment in a Person engaged in a Permitted Business (other than an Investment in an Unrestricted Subsidiary) having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (f) that are at that time outstanding, not to exceed 15% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value), (g) Investments relating to any special purpose Wholly Owned Subsidiary of DeCrane Aircraft organized in connection with a Receivables Facility that, in the good faith determination of the board of directors of DeCrane Aircraft, are necessary or advisable to effect such Receivables Facility and (h) the Management Loans and GTP Loans. "PERMITTED LIENS" means: (i) Liens on property of a Person existing at the time such Person is merged into or consolidated with DeCrane Aircraft or any Restricted Subsidiary, PROVIDED that such Liens were not incurred in contemplation of such merger or consolidation and do not secure any property or assets of DeCrane Aircraft or any Restricted Subsidiary other than the property or assets subject to the Liens prior to such merger or consolidation; (ii) Liens existing on the date of the Indenture; (iii) Liens securing Indebtedness consisting of Capitalized Lease Obligations, purchase money Indebtedness, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred solely for the purpose of financing all or any part of the purchase price or cost of construction or installation of assets used in the business of DeCrane Aircraft or its Restricted Subsidiaries, or repairs, additions or improvements to such assets, PROVIDED that (A) such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, additional or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness), (B) such Liens do not extend to any other assets of DeCrane Aircraft or its Restricted Subsidiaries (and, in the case of repair, addition or improvements to any such assets, such Lien extends only to the assets (and improvements thereto or thereon) repaired, added to or improved), (C) the Incurrence of such Indebtedness is permitted by "-- Certain Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock" and (D) such Liens attach within 365 days of such purchase, construction, installation, repair, addition or improvement; (iv) Liens to secure any refinancings, renewals, extensions, modification or replacements (collectively, "refinancing") (or successive refinancings), in whole or in part, of any Indebtedness secured by Liens referred to in the clauses above so long as such Lien does not extend to any other property (other than improvements thereto); (v) Liens securing letters of credit entered into in the ordinary course of 104 business and consistent with past business practice; (vi) Liens on and pledges of the capital stock of any Unrestricted Subsidiary securing Non-Recourse Debt of such Unrestricted Subsidiary; (vii) Liens securing Indebtedness (including all Obligations) under the bank credit facility; and (viii) other Liens securing Indebtedness that is permitted by the terms of the Indenture to be outstanding having an aggregate principal amount at any one time outstanding not to exceed $50.0 million. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of DeCrane Aircraft or any of its Restricted Subsidiaries issued within 60 days after repayment of, in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of DeCrane Aircraft or any of its Restricted Subsidiaries; PROVIDED that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus premium, if any, and accrued interest on the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith), (b) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, and (c) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the notes on terms at least as favorable, taken as a whole, to the holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PRINCIPALS" means DLJMB. "PUBLIC EQUITY OFFERING" means any issuance of common stock by DeCrane Aircraft (other than to DeCrane Holdings and other than Disqualified Stock) or common stock or preferred stock by DeCrane Holdings (other than Disqualified Stock) registered pursuant to the Securities Act, other than issuances registered on Form S-8 and issuances registered on Form S-4, excluding issuances of common stock pursuant to employee benefit plans of DeCrane Holdings or DeCrane Aircraft or otherwise as compensation to employees of DeCrane Aircraft or DeCrane Holdings. "QUALIFIED PROCEEDS" means any of the following or any combination of the following: (i) cash; (ii) Cash Equivalents; (iii) assets that are used or useful in a Permitted Business; and (iv) the Capital Stock of any Person engaged in a Permitted Business if, in connection with the receipt by DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft of such Capital Stock, (A) such Person becomes a Restricted Subsidiary of DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft or (B) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft. "RECEIVABLES FACILITY" means one or more receivables financing facilities, as amended from time to time, pursuant to which DeCrane Aircraft or any of its Restricted Subsidiaries sells its accounts receivable to an Accounts Receivable Subsidiary. "RECEIVABLES FEES" means distributions or payments made directly or by means of discounts with respect to any participation interests issued or sold in connection with, and other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Receivables Facility. "RELATED PARTY" means, with respect to any Principal, (i) any controlling stockholder or partner of such Principal on the date of the Indenture, or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding (directly or through one or more Subsidiaries) a 51% or more controlling interest of which consist of the Principals and/or such other Persons referred to in the immediately preceding clauses (i) or (ii). 105 "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "SPOT RATE" means, for any currency, the spot rate at which such currency is offered for sale against United States dollars as determined by reference to the New York foreign exchange selling rates, as published in The Wall Street Journal on such date of determination for the immediately preceding business day or, if such rate is not available, as determined in any publicly available source of similar market data. "STATED MATURITY" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "SUBSIDIARY" means, with respect to any Person, (a) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (b) any partnership or limited liability company (i) the sole general partner or the managing general partner or managing member of which is such Person or a Subsidiary of such Person or (ii) the only general partners or managing members of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TAX SHARING AGREEMENT" means any tax sharing agreement or arrangement between DeCrane Aircraft and DeCrane Holdings, as the same may be amended from time to time; PROVIDED that in no event shall the amount permitted to be paid pursuant to all such agreements and/or arrangements exceed the amount DeCrane Aircraft would be required to pay for income taxes were it to file a consolidated tax return for itself and its consolidated Restricted Subsidiaries as if it were a corporation that was a parent of a consolidated group. "TOTAL ASSETS" means the total consolidated assets of DeCrane Aircraft and its Restricted Subsidiaries, as shown on the most recent balance sheet (excluding the footnotes thereto) of DeCrane Aircraft prepared in accordance with GAAP. "UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the board of directors as an Unrestricted Subsidiary pursuant to a board resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with DeCrane Aircraft or any Restricted Subsidiary of DeCrane Aircraft unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to DeCrane Aircraft or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of DeCrane Aircraft; (c) is a Person with respect to which neither DeCrane Aircraft nor any of its Restricted Subsidiaries has any direct or indirect obligation (i) to subscribe for additional Equity Interests (other than Investments described in clause (g) of the definition of Permitted Investments) or (ii) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels, of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of DeCrane Aircraft or any of its Restricted Subsidiaries. Any such designation by the board of directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the board resolution giving effect to such 106 designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the covenant described under the caption entitled "--Certain Covenants-Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of DeCrane Aircraft as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption entitled "--Certain Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock," DeCrane Aircraft shall be in default of such covenant). The board of directors of DeCrane Aircraft may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of DeCrane Aircraft of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under the covenant described under the caption entitled "-Certain Covenants-Incurrence of Indebtedness and Issuance Preferred of Stock" and (ii) no Default or Event of Default would be in existence following such designation. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person. "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary of such Person all the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or by such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture and Registration Rights Agreement without charge by writing to us, or obtaining from public sources a copy of the exhibits to the registration statement of which this Prospectus is a part. See "Where You Can Get More Information" in the summary. 107 THE INITIAL OFFERING In August 1998, in connection with the DLJ acquisition, DeCrane Aircraft assumed responsibility (by merger) for $100.0 million of Senior Subordinated Increasing Rate Notes to DLJ Bridge Finance, Inc. We used the proceeds from these bridge notes to fund the tender offer purchases made as part of the DLJ acquisition, and certain related expenses. The bridge notes were refinanced by our issuance in October of the old notes to the initial purchaser Donaldson, Lufkin & Jenrette Securities Corporation. See "Recent Developments--The DLJ Acquisition." The old notes were not registered under the Securities Act, and accordingly subject to various transfer restrictions. We concurrently entered into a Registration Rights Agreement, which requires us to take certain steps to issue the new notes, offer them in exchange for the old notes under this exchange offer, and register them, all as described in "Description of Notes--Registration Rights Agreement." The terms of the old notes and the new notes are identical in most respects, except as described in "Description of Notes." THE EXCHANGE OFFER We are conducting this exchange offer, and filing the registration statement of which this Prospectus is part, in order to comply with our obligations under the Registration Rights Agreement which we entered into with the Initial Purchaser at the time of the DLJ acquisition. If we are not permitted to complete this exchange offer, because it is not permitted by applicable law or SEC policy, or any holder of the old notes (or certain new notes bearing transfer restrictions) notifies us of certain restrictions on its participation in the exchange offer within 20 business days of the completion of this exchange offer, we will file with the SEC a Shelf Registration Statement to cover resales of the notes by holders who satisfy certain conditions relating to the provision of information. This exchange offer is not extended to, and we will not accept tenders from, holders of old notes in any jurisdiction in which this exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES The terms and conditions for this exchange offer are set forth in this Prospectus and in the accompanying Letter of Transmittal. Subject to those terms and conditions, we will accept for exchange old notes which are properly tendered on or prior to the expiration date (described below) and not withdrawn as permitted below. For each $1,000 principal amount at maturity of old notes surrendered pursuant to this exchange offer, the holder will receive an exchange note with the same principal amount at maturity. We will keep this exchange offer open for not less than 20 business days (or longer if required by applicable law) after the date that this Prospectus is first sent to the holders of the old notes. We are mailing it, on or about the date on the cover page, to all registered holders of old notes at the addresses set forth in the register maintained by the Trustee. This exchange offer is subject to certain conditions as set forth under "--Certain Conditions to this Exchange Offer" below. We expressly reserve the right, at any time or from time to time, to extend the period of time during which this exchange offer is open, and thereby delay acceptance of any old notes, by giving oral or written notice of such extension to the Exchange Agent and notice of such extension to each holder as described below. During any such extension, all old notes previously tendered will remain subject to this exchange offer and we may accept them for exchange. We will return any old notes not accepted for exchange for any reason, without expense to the tendering holders, as promptly as is practicable after the expiration or termination of this exchange offer. 108 We expressly reserve the right to amend or terminate this exchange offer, and to cease accepting any tenders of old notes, if any of the conditions of this exchange offer specified below under "Certain Conditions to this Exchange Offer" occur. We will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the old notes as promptly as practicable. If the exchange offer is extended, we will give that notice by means of a press release or other public announcement no later than 9:00 a.m., New York City Time, on the next business day after the previously scheduled expiration date. Other than as may be required by applicable law, we have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. Holders of old notes do not have any appraisal or dissenters' rights in connection with this exchange offer. Old notes which are not tendered for exchange or are tendered but not accepted in connection with this exchange offer will remain outstanding and be entitled to the benefits of the Indenture, but will not be entitled to any further registration rights under the Registration Rights Agreement. We intend to conduct this exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC. PROCEDURES FOR TENDERING OLD NOTES If you tender old notes as set forth below and we accept them, we will have a binding agreement on the terms and conditions set forth in this Prospectus and in the Letter of Transmittal. Except as set forth below, in order to tender old notes and accept this exchange offer, you must: - complete and sign a Letter of Transmittal, and comply with the instructions which it contains, - forward it (and any other required documents) using a method of delivery permitted by the Letter of Transmittal to the Exchange Agent appointed by us, whose address appears below and in the Letter of Transmittal, by 5:00 p.m. New York City time on the expiration date, and - either deliver your old notes in the same package, or comply with the book entry delivery method noted below, or comply with the guaranteed postponed delivery method noted below. Please note that, if your old notes are held through a broker, dealer, commercial bank, trust company or other nominee, you must contact that person promptly if you wish to tender your notes. YOU MAY ELECT WHICH METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS YOU USE, BUT YOU DO SO AT YOUR OWN RISK. IF YOU CHOOSE TO DELIVER DOCUMENTS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ANY CASE, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO DECRANE AIRCRAFT. SIGNATURE GUARANTEES. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed, unless the old notes surrendered for exchange pursuant thereto are tendered either (i) by a registered Holder of the old notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an institution which itself is eligible to issue the guarantees described below. The only kind of signature guarantees which will be acceptable are those made by a firm which is a member of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States. If old notes are registered in the name of a person other than the person signing the Letter of Transmittal, the old notes surrendered for exchange must be endorsed by, or be accompanied 109 by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with a signature guarantee of the kind described above. We will determine all questions as to the validity, form, eligibility, time of receipt and acceptance of old notes tendered for exchange in our sole discretion. We reserve the absolute right to reject any and all tenders of any particular old notes not properly tendered, or to not accept any particular old notes which acceptance, in our judgment or that of our counsel, might be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of this exchange offer as to any particular old notes, either before or after the expiration of this offer Date (including the ineligibility of any holder to tender old notes). Our interpretation of the terms and conditions of this exchange offer as to any particular old notes shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tender of old notes for exchange must be cured within such reasonable period of time as we determine. Neither DeCrane Aircraft, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of old notes for exchange, nor incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of old notes, those old notes must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the old notes. If the Letter of Transmittal or any old notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers or corporations or others acting in a fiduciary or representative capacity, the person signed must indicate their capacity and, unless waived by us, submit along with the documents proper evidence satisfactory to us of its authority to so act. By executing, or otherwise becoming bound by, the Letter of Transmittal, each holder of the old notes (other than certain specified holders) will represent that (i) it is not an affiliate of DeCrane Aircraft, (ii) any new notes to be received by it were acquired in the ordinary course of its business and (iii) it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the new notes. If the tendering holder is a broker-dealer that will receive new notes for its owns account in exchange for old notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such new notes. See "--Resale of the New Notes." ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES Upon satisfaction or waiver of all of the conditions to this exchange offer, we will accept, promptly after the expiration date, all old notes properly tendered and will issue the new notes promptly after acceptance of the old notes. See "--Certain Conditions to this Exchange Offer" below. For purposes of this exchange offer, we shall be deemed to have accepted properly tendered old notes for exchange when, as and if we have given oral or written notice thereof to the Exchange Agent. In all cases, issuance of new notes for old notes that are accepted for exchange pursuant to this exchange offer will be made only after timely receipt by the Exchange Agent of certificates for such old notes or a timely Book-Entry Confirmation of such old notes into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described below, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered old notes are not accepted for any reason set forth in the terms and conditions of this exchange offer or if certificates 110 representing old notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged old notes will be returned without expense to the tendering holder thereof (or, in the case of old notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described below, such non-exchanged old notes will be credited to an account maintained with DTC) as promptly as practicable after the expiration or termination of this exchange offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the old notes at DTC for purposes of this exchange offer promptly after the date of this Prospectus. Any financial institution that is a participant in DTC's systems may make book-entry delivery of old notes by causing DTC to transfer such old notes into the Exchange Agent's account in accordance with DTC's Automated Tender Offer Program ("ATOP") procedures for transfer. However, we will only make exchanges for old notes tendered in this manner after: (i) timely confirmation that the book-entry transfer of old notes has been made into the Exchange Agent's account, and (ii) timely receipt by the Exchange Agent of all other documents required by the Letter of Transmittal, and a confirmation message, transmitted by DTC, confirming the book-entry transfer of the old notes, and stating that DTC has received an express acknowledgment from the holder that it has received and agrees to be bound by the terms of the Letter of Transmittal, and that we may enforce such agreement against it. Please note that, even if you deliver old notes by this book-entry transfer method, you must still deliver the Letter of Transmittal, properly completed and duly executed, with any required signature guarantees and any other required documents, to the Exchange Agent at its address set forth under "--Exchange Agent", on before the expiration date for this exchange offer. Please note also that delivery of documents to DTC in accordance with its procedures does not constitute delivery to the Exchange Agent. GUARANTEED DELIVERY PROCEDURES If a registered holder of the old notes desires to tender them, and they are not immediately available, or time will not permit the notes or other required documents to reach the Exchange Agent before the expiration date for the exchange offer, or the procedure for book-entry transfer cannot be completed on a timely basis, the holder still may validly accomplish a tender of the notes if: (i) the tender is made through a firm which is a member of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States, (ii) prior to that expiration date, the Exchange Agent receives from one of those institutions a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) along with a Notice of Guaranteed Delivery, substantially in the form we have provided, by telegram, telex, facsimile transmission, mail or hand delivery), and (iii) the certificates for all physically tendered old notes, in proper form for transfer, or a confirmation of book-entry transfer as described above, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery. 111 The Notice of Guaranteed Delivery must state the name and address of the holder of old notes, state the amount of old notes tendered, state that tender is being made thereby, and guarantee that within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered old notes, in proper form for transfer, or a confirmation of book-entry transfer as described above, and all other documents required by the Letter of Transmittal, will be deposited by the institution with the Exchange Agent, WITHDRAWAL RIGHTS Tenders of old notes may be withdrawn at any time prior to the expiration date for this exchange offer. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any notice of withdrawal must specify the name of the person having tendered the old notes to be withdrawn, identify the old notes to be withdrawn (including the principal amount at maturity of such old notes), and (where certificates for old notes have been transmitted) specify the name in which such old notes are registered, if different from that of the withdrawing holder. If certificates for old notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If old notes have been tendered pursuant to the procedure for book-entry transfer described above, any note of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old notes and otherwise comply with the procedures of such facility. Our determination of all questions as to the validity, form and eligibility (including time of receipt) of such notices will be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of this exchange offer. We will return any old notes tendered for exchange but which are not exchanged for any reason, without cost to such holder (or, in the case of old notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described above, we will cause such old notes to be credited to an account maintained with DTC for the old notes) as soon as practicable after withdrawal, rejection of tender or termination of this exchange offer. Properly withdrawn old notes may be re-entered by following one of the procedures described under "--Procedures for Tendering Old Notes" above at any time on or prior to the expiration date for this exchange offer. CERTAIN CONDITIONS TO THIS EXCHANGE OFFER Notwithstanding any other provisions of this exchange offer, we are not required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend this exchange offer, if at any time before the acceptance of such old notes for exchange or this exchange of the new notes for such old notes, such acceptance or issuance would violate applicable law or any interpretation of the staff of the SEC. The foregoing condition is for our sole benefit and may be asserted by us regardless of the circumstances giving rise to such condition. Our failure at any time to exercise the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, we will not accept for exchange any old notes tendered, nor issue any new notes and no new notes will be issued in exchange for any such old notes, if at such time any stop order shall be threatened or in effect with respect to either (i) the registration statement of which this Prospectus constitutes a part or (ii) the qualification of the Indenture under the Trust Indenture Act. 112 EXCHANGE AGENT We have appointed State Street Bank & Trust Co. as the Exchange Agent for this exchange offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: Deliver To: STATE STREET BANK & TRUST COMPANY, EXCHANGE AGENT BY MAIL: BY OVERNIGHT COURIER: P.O. Box 778 Two International Place Boston, Massachusetts 02102 Boston, Massachusetts 02110 ATTENTION: Corporate Trust Department ATTENTION: Corporate Trust Department Kellie Mullen Kellie Mullen BY HAND in New York to 4:30 p.m. BY HAND in Boston to 4:30 p.m.: (as drop agent): Two International Place 61 Broadway Fourth Floor 15th Floor Corporation Trust Corporate Trust Window Boston, Massachusetts 12110 New York, NY 10006
FOR INFORMATION CALL: 617-664-5587 Delivery to any other address or transmission in any other manner will not be a valid delivery. FEES AND EXPENSES Our solicitation for this exchange offer is being made primarily by mail. However, we may made additional solicitation by telegraph, telephone, electronic mail or in person by our officers and regular employees. No additional compensation will be paid to any such officers and employees who engage in soliciting tenders. We will not make any payment to brokers, dealers, or others soliciting acceptances of this exchange offer. However, we will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. Our cash expenses to be incurred in connection with this exchange offer will be paid by us, and we estimate that they will total about $ . TRANSFER TAXES Holders who tender their old notes for exchange will not be obligated to pay any transfer taxes in connection therewith; except that holders who: - instruct us to register new notes in the name of a person other than the registered tendering holder, or - request that old notes not tendered or not accepted in this exchange offer to be returned to a person other than the registered tendering holder, will be responsible for the payment of any applicable transfer tax thereon. 113 RESALE OF THE NEW NOTES Under existing interpretations of the staff of the SEC contained in several no-action letters to third parties, the new notes generally should be freely transferable after this exchange offer by a holder (other than a broker or dealer) without further compliance with the registration and prospectus delivery requirements of the Securities Act, if: - the new notes are acquired in the ordinary course of the holder's business; - the holder is not participating, and has not entered into an arrangement or understanding to participate, in a distribution of the new notes (as "distribution" is understood under the Securities Act); - the holder is not our affiliate (as "affiliate" is defined in Rule 405 under the Securities Act), or a broker or dealer who purchased the old notes for resale; and - the holder is not a broker or dealer who acquired the old notes for its own account. However, the foregoing view relies on statements by the staff of the Division of Corporation Finance of the SEC, in interpretive letters which discuss other transactions. We have not sought our own interpretive letter, so there is no definitive legal determination of the foregoing issue. Each holder of old notes who signs, or otherwise becomes bound by, the Letter of Transmittal (other than certain specified holders) will represent that it qualifies for each of the criteria listed above. Any holders who do not meet the foregoing criteria will not be able to tender their old notes in this exchange offer, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the notes, unless such sale or transfer is made pursuant to an exemption from such requirements. In any resales of new notes, any participating broker-dealer who acquired the notes for its own account as a result of market-making or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The SEC has taken the position that participating broker-dealers may fulfill their prospectus delivery requirements with respect to the new notes (other than a resale of an unsold allotment from the original sale of the old notes) with this prospectus, as it may be amended or supplemented. Under the Registration Rights Agreement, we are required to allow participating broker-dealers (and other persons, if any, subject to similar prospectus delivery requirements) to use this Prospectus as it may be amended or supplemented from time to time, in connection with the resale of such exchange notes. CERTAIN FEDERAL INCOME TAX CONSEQUENCES This section is a summary of certain federal income tax considerations relevant to this exchange offer. It is not a complete analysis of all potential tax effects. We have not considered foreign or state taxes, gift taxes or gift taxes (among other things), and your individual tax liabilities and consequences also depend on your own circumstances. We based this summary on U.S. federal tax law, regulations, pronouncements and judicial decisions now in effect. All of the laws and rules may change, and changes can be made retroactively as well. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO YOU OF PARTICIPATING IN THIS EXCHANGE OFFER. Your exchange of old notes for new notes pursuant to this exchange offer should have no federal income tax consequences to you as a holder of the notes. When you exchange an old note for a new note under this exchange offer, you should have the same adjusted basis and holding period in the new note as you had in the old note immediately before the exchange occurred. 114 PLAN OF DISTRIBUTION Each broker-dealer who acquired old notes for its own account, as a result of market-making activities or other trading and who participates in this exchange offer activities (which we call "participating broker-dealers" in this Prospectus) must acknowledge that it will deliver a prospectus in connection with any resale of new notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer in connection with resales of the new notes received in exchange for old notes, IF it acquired the old notes as a result of market-making activities or other trading activities. We have agreed that we will make this Prospectus, as amended or supplemented, available to any participating broker-dealer for use in any such resale, and those broker-dealers will be authorized to deliver it for no more than 90 days after the expiration date of the exchange offer. We will not receive any proceeds from any sales of the new notes by participating broker-dealers. New notes received by such brokers-dealers for their own account in this exchange offer may be sold from time to time, in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the notes, or a combination of such methods of resale, and may be sold at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from the participating broker-dealer that resells the new notes that were received by it for its own account under this exchange offer. Any broker or dealer that participates in a distribution of that kind may be deemed to be an "underwriter" within the meaning of the Securities Act. Any profit on resulting resales of new notes, and any omissions or concessions received by any such persons, may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a participating broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We will promptly send additional copies of this Prospectus, and any amendment or supplement to this Prospectus, to any participating broker-dealer that requests such documents in the Letter of Transmittal. See "The Exchange Offer." LEGAL MATTERS The validity of the new notes offered hereby will be passed upon for DeCrane Aircraft by Spolin & Silverman LLP, Santa Monica, California. EXPERTS The consolidated balance sheets as of December 31, 1997 and 1998 and the consolidated statements of operations, of stockholders' equity and of cash flows for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998 of DeCrane Aircraft Holdings, Inc., the balance sheets as of September 30, 1996 and 1997 and the statements of income, of stockholder's equity and of cash flows for each of the three years in the period ended September 30, 1997 of Avtech Corporation, and the consolidated balance sheets as of June 30, 1997 and 1998 and the consolidated statements of operations, of stockholders' equity and of cash flows for the years then ended of PATS, Inc. included in this Prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 115 INDEX TO FINANCIAL STATEMENTS
PAGE --------- DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES Report of Independent Accountants........................................................................ F-2 Consolidated Balance Sheets as of December 31, 1997 and 1998............................................. F-3 Consolidated Statements of Operations for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998...................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998............................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998...................................... F-7 Notes to Consolidated Financial Statements............................................................... F-8 AVTECH CORPORATION Report of Independent Accountants........................................................................ F-43 Balance Sheets as of September 30, 1996 and 1997 and June 25, 1998 (unaudited)........................... F-44 Statements of Income for the years ended September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and June 25, 1998 (unaudited)................................................................. F-45 Statements of Stockholders' Equity for the years ended September 30, 1995, 1996 and 1997 and the nine months ended June 25, 1998 (unaudited)................................................................. F-46 Statements of Cash Flows for the years ended September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and June 25, 1998 (unaudited)............................................................ F-47 Notes to Financial Statements............................................................................ F-48 PATS, INC. AND SUBSIDIARIES Report of Independent Accountants........................................................................ F-55 Consolidated Balance Sheets as of June 30, 1997 and 1998 and December 31, 1998 (unaudited)............... F-56 Consolidated Statements of Operations for the years ended June 30, 1997 and 1998 and the six months ended December 31, 1997 and 1998 (unaudited)................................................................. F-57 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1997 and 1998 and the six months ended December 31, 1998 (unaudited)............................................................. F-58 Consolidated Statements of Cash Flows for the years ended June 30, 1997 and 1998 and the six months ended December 31, 1997 and 1998 (unaudited)................................................................. F-59 Notes to Consolidated Financial Statements............................................................... F-60
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of DeCrane Aircraft Holdings, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of DeCrane Aircraft Holdings, Inc. and its subsidiaries at December 31, 1997 and 1998 and the results of their operations and their cash flows for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Los Angeles, California February 19, 1999 F-2 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, 1997 1998 (PREDECESSOR) (SUCCESSOR) ----------- ------------ ASSETS Current assets Cash and cash equivalents................................................ $ 206 $ 3,518 Accounts receivable, net................................................. 18,152 30,441 Inventories.............................................................. 25,976 34,281 Deferred income taxes.................................................... -- 4,300 Prepaid expenses and other current assets................................ 782 3,897 ----------- ------------ Total current assets................................................... 45,116 76,437 Property and equipment, net................................................ 14,054 28,160 Other assets, principally intangibles, net................................. 39,967 226,330 ----------- ------------ Total assets......................................................... $ 99,137 $ 330,927 ----------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term borrowings.................................................... $ 568 $ 283 Current portion of long-term obligations................................. 858 1,529 Accounts payable......................................................... 8,032 6,383 Accrued expenses......................................................... 6,911 18,466 Income taxes payable..................................................... 3,975 3,743 ----------- ------------ Total current liabilities.............................................. 20,344 30,404 ----------- ------------ Long-term liabilities Long-term obligations.................................................... 37,412 184,953 Deferred income taxes.................................................... 1,758 16,990 Other long-term liabilities.............................................. 96 659 ----------- ------------ Total long-term liabilities............................................ 39,266 202,602 ----------- ------------ Commitments and contingencies (Note 15).................................... -- -- ----------- ------------ Stockholders' equity Cumulative convertible preferred stock, $.01 par value, 8,314,018 shares authorized; none issued and outstanding as of December 31, 1997 and 1998................................................................... -- -- Undesignated preferred stock, $.01 par value, 10,000,000 shares authorized; none issued and outstanding as of December 31, 1997 and 1998................................................................... -- -- Common stock, no par value, 4,253,550 shares authorized; none issued and outstanding as of December 31, 1997 and 1998........................... -- -- Common stock, $.01 par value, 9,924,950 and 100 shares authorized as of December 31, 1997 and 1998, respectively; 5,318,563 and 100 shares issued and outstanding as of December 31, 1997 and 1998, respectively........................................................... 53 -- Additional paid-in capital............................................... 51,057 100,200 Accumulated deficit...................................................... (11,444) (2,553) Accumulated other comprehensive income (loss)............................ (139) 274 ----------- ------------ Total stockholders' equity............................................. 39,527 97,921 ----------- ------------ Total liabilities and stockholders' equity........................... $ 99,137 $ 330,927 ----------- ------------ ----------- ------------
The accompanying notes are an integral part of the consolidated financial statements. F-3 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
EIGHT YEAR ENDED DECEMBER MONTHS FOUR MONTHS 31, ENDED ENDED -------------------- AUGUST 31, DECEMBER 1998 31, 1998 1996 1997 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) --------- --------- ----------- ----------- Revenues........................................ $ 65,099 $ 108,903 $ 90,077 $ 60,356 Cost of sales................................... 49,392 80,247 60,101 42,739 --------- --------- ----------- ----------- Gross profit.............................. 15,707 28,656 29,976 17,617 --------- --------- ----------- ----------- Operating expenses Selling, general and administrative expenses.................................... 10,747 15,756 15,719 10,274 Nonrecurring charges.......................... -- -- 3,632 -- Amortization of intangible assets............. 709 905 1,347 3,148 --------- --------- ----------- ----------- Total operating expenses.................... 11,456 16,661 20,698 13,422 --------- --------- ----------- ----------- Income from operations.......................... 4,251 11,995 9,278 4,195 Other expenses Interest expense.............................. 4,248 3,154 2,350 6,852 Terminated debt offering expenses............. -- -- 600 -- Other expenses................................ 108 243 247 335 --------- --------- ----------- ----------- Income (loss) before provision for income taxes and extraordinary item........................ (105) 8,598 6,081 (2,992) Provision (benefit) for income taxes............ 712 3,344 2,892 (2,668) --------- --------- ----------- ----------- Income (loss) before extraordinary item......... (817) 5,254 3,189 (324) Extraordinary loss from debt refinancing, net of income tax benefit............................ -- 2,078 -- 2,229 --------- --------- ----------- ----------- Net income (loss)............................... $ (817) $ 3,176 $ 3,189 $ (2,553) --------- --------- ----------- ----------- --------- --------- ----------- -----------
The accompanying notes are an integral part of the consolidated financial statements. F-4 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ----------------------------------- ACCUMULATED NO PAR VALUE $.01 PAR VALUE OTHER CUMULATIVE --------------- ----------------- COMPRE- CONVERTIBLE NUMBER NUMBER ADDITIONAL ACCUM- HENSIVE PREFERRED OF OF PAID-IN ULATED INCOME PREDECESSOR: STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (LOSS) TOTAL - ------------------------------ ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- Balance, December 31, 1995...................... $ 5,549 85,593 $ 58 -- $-- $ -- $ (7,807) $ 503 $(1,697) ------- Comprehensive loss Net loss.................. -- -- -- -- -- -- (817) -- (817) Translation adjustment.... -- -- -- -- -- -- -- (382) (382) ------- (1,199) Adjustment to estimated redemption value of mandatorily redeemable common stock warrants..... -- -- -- -- -- -- (4,320) -- (4,320) Issuance of cumulative convertible preferred stock, net................ 8,301 -- -- -- -- -- -- -- 8,301 Mandatorily redeemable common stock warrants issued pursuant to anti-dilution provisions................ -- -- -- -- -- -- (7) -- (7) Stock option compensation expense................... -- -- 158 -- -- -- -- -- 158 ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- Balance, December 31, 1996...................... 13,850 85,593 216 -- -- -- (12,951) 121 1,236 ------- Comprehensive income Net income................ -- -- -- -- -- -- 3,176 -- 3,176 Translation adjustment.... -- -- -- -- -- -- -- (260) (260) ------- 2,916 Delaware reorganization and reverse stock split....... -- (85,593) (216) 85,593 1 215 -- -- -- Adjustment to estimated redemption value of mandatorily redeemable common stock warrants..... -- -- -- -- -- -- (2,203) -- (2,203)
The accompanying notes are an integral part of the consolidated financial statements. F-5 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED)
COMMON STOCK ----------------------------------- ACCUMULATED NO PAR VALUE $.01 PAR VALUE OTHER CUMULATIVE --------------- ----------------- COMPRE- CONVERTIBLE NUMBER NUMBER ADDITIONAL ACCUM- HENSIVE PREFERRED OF OF PAID-IN ULATED INCOME STOCK SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (LOSS) TOTAL ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- Recapitalization Conversion of preferred stock into common stock................... (13,850) -- -- 1,941,804 19 13,831 -- -- -- Cashless exercise and conversion of warrants................ -- -- -- 524,293 6 6,097 -- -- 6,103 Cancellation of mandatorily redeemable common stock warrants... -- -- -- -- -- -- 1,143 -- 1,143 Initial Public Offering Proceeds from the offering, net........... -- -- -- 2,700,000 27 28,229 -- -- 28,256 Cancellation of mandatorily redeemable common stock warrants upon debt repayment and reclassification of warrants no longer redeemable.............. -- -- -- -- -- 1,836 -- -- 1,836 Common shares issued pursuant to anti-dilution provisions.............. -- -- -- 50,743 -- 609 (609) -- -- Cashless exercise of common stock warrants............ -- -- -- 16,130 -- -- -- -- -- Stock option compensation expense................... -- -- -- -- -- 240 -- -- 240 ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- Balance, December 31, 1997...................... -- -- -- 5,318,563 53 51,057 (11,444) (139) 39,527 ------- Comprehensive income Net income................ -- -- -- -- -- -- 3,189 -- 3,189 Translation adjustment.... -- -- -- -- -- -- -- 94 94 ------- 3,283 Exercise of stock options... -- -- -- 575,692 6 8,206 -- -- 8,212 Sale of common stock........ -- -- -- 2,206,177 22 34,793 -- -- 34,815 ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- Balance, August 31, 1998.... $ -- -- $-- 8,100,432 $81 $ 94,056 $ (8,255) $ (45) $85,837 ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- SUCCESSOR: - ------------------------------ Sale of common stock........ $ -- -- $-- 100 $-- $ 99,000 $ -- $-- $99,000 ------- Comprehensive loss Net loss.................. -- -- -- -- -- -- (2,553) -- (2,553) Translation adjustment.... -- -- -- -- -- -- -- 274 274 ------- (2,279) Value of warrants issued in connection with debt offering.................. -- -- -- -- -- 1,200 -- -- 1,200 ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- Balance, December 31, 1998...................... $ -- -- $-- 100 $-- $100,200 $ (2,553) $ 274 $97,921 ----------- ------- ------ --------- ------ ---------- -------- ----------- ------- ----------- ------- ------ --------- ------ ---------- -------- ----------- -------
The accompanying notes are an integral part of the consolidated financial statements. F-6 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, EIGHT MONTHS -------------------- ENDED AUGUST 31, 1998 1996 1997 (PREDECESSOR) (PREDECESSOR) --------- --------- --------------- Cash flows from operating activities Net income (loss)................................................................. $ (817) $ 3,176 $ 3,189 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities Depreciation and amortization................................................. 4,343 5,372 4,454 Extraordinary loss from debt refinancing...................................... -- 2,078 -- Deferred income taxes......................................................... 88 (1,281) (2,339) Other, net.................................................................... 188 654 (360) Changes in assets and liabilities Accounts receivable....................................................... (3,069) (3,159) (3,621) Inventories............................................................... (2,665) (4,956) (2,017) Prepaid expenses and other assets......................................... (3) (136) (58) Accounts payable.......................................................... 1,891 (361) (1,127) Accrued expenses.......................................................... 2,477 (1,041) 3,519 Income taxes payable...................................................... 525 4,295 1,374 --------- --------- ------- Net cash provided by operating activities............................. 2,958 4,641 3,014 --------- --------- ------- Cash flows from investing activities Cash paid for acquisitions, net of cash acquired.................................. (18,200) (23,597) (85,808) Capital expenditures.............................................................. (5,821) (3,842) (1,745) Other, net........................................................................ 5 (370) 175 --------- --------- ------- Net cash used for investing activities................................ (24,016) (27,809) (87,378) --------- --------- ------- Cash flows from financing activities Acquisition of Predecessor Proceeds from senior credit facility and bridge notes........................... -- -- -- Proceeds from sale of common stock.............................................. -- -- -- Proceeds from stock options exercised........................................... -- -- -- Purchase of shares outstanding.................................................. -- -- -- Repayment of existing senior credit facility.................................... -- -- -- Transaction fees and expenses................................................... -- -- -- Common stock offerings and application of the net proceeds Net proceeds from sale of common stock.......................................... -- 28,933 34,815 Borrowings under credit facility................................................ -- 12,312 -- Repayment of debt............................................................... -- (42,160) (34,815) Financing of acquisitions Revolving line of credit borrowings............................................. 6,399 23,597 85,808 Proceeds from issuance of cumulative convertible preferred stock and mandatorily redeemable common stock warrants, net.......................................... 8,805 -- -- Senior term loan borrowings..................................................... 5,000 -- -- Convertible subordinated note borrowings from related parties................... 3,000 -- -- Promissory note principal payments.............................................. -- (1,095) -- Net borrowings under revolving line of credit agreements.......................... 1,191 2,906 5,453 Principal payments on capitalized lease and other long-term obligations........... (2,001) (1,675) (1,317) Other, net........................................................................ (1,343) 139 (73) --------- --------- ------- Net cash provided by (used for) financing activities.................. 21,051 22,957 89,871 --------- --------- ------- Effect of foreign currency translation on cash...................................... 22 97 26 --------- --------- ------- Net increase (decrease) in cash and cash equivalents................................ 15 (114) 5,533 Cash and cash equivalents at beginning of period.................................... 305 320 206 --------- --------- ------- Cash and cash equivalents at end of period.......................................... $ 320 $ 206 $ 5,739 --------- --------- ------- --------- --------- ------- FOUR MONTHS ENDED DECEMBER 31, 1998 (SUCCESSOR) -------------- Cash flows from operating activities Net income (loss)................................................................. $ (2,553) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities Depreciation and amortization................................................. 4,983 Extraordinary loss from debt refinancing...................................... 2,229 Deferred income taxes......................................................... (5,072) Other, net.................................................................... (97) Changes in assets and liabilities Accounts receivable....................................................... (2,929) Inventories............................................................... 4,313 Prepaid expenses and other assets......................................... (562) Accounts payable.......................................................... (1,754) Accrued expenses.......................................................... 2,342 Income taxes payable...................................................... 108 -------------- Net cash provided by operating activities............................. 1,008 -------------- Cash flows from investing activities Cash paid for acquisitions, net of cash acquired.................................. -- Capital expenditures.............................................................. (1,813) Other, net........................................................................ -- -------------- Net cash used for investing activities................................ (1,813) -------------- Cash flows from financing activities Acquisition of Predecessor Proceeds from senior credit facility and bridge notes........................... 191,722 Proceeds from sale of common stock.............................................. 99,000 Proceeds from stock options exercised........................................... 4,314 Purchase of shares outstanding.................................................. (186,310) Repayment of existing senior credit facility.................................... (93,000) Transaction fees and expenses................................................... (15,726) Common stock offerings and application of the net proceeds Net proceeds from sale of common stock.......................................... -- Borrowings under credit facility................................................ -- Repayment of debt............................................................... -- Financing of acquisitions Revolving line of credit borrowings............................................. -- Proceeds from issuance of cumulative convertible preferred stock and mandatorily redeemable common stock warrants, net.......................................... -- Senior term loan borrowings..................................................... -- Convertible subordinated note borrowings from related parties................... -- Promissory note principal payments.............................................. -- Net borrowings under revolving line of credit agreements.......................... (1,103) Principal payments on capitalized lease and other long-term obligations........... (458) Other, net........................................................................ (36) -------------- Net cash provided by (used for) financing activities.................. (1,597) -------------- Effect of foreign currency translation on cash...................................... 181 -------------- Net increase (decrease) in cash and cash equivalents................................ (2,221) Cash and cash equivalents at beginning of period.................................... 5,739 -------------- Cash and cash equivalents at end of period.......................................... $ 3,518 -------------- --------------
The accompanying notes are an integral part of the consolidated financial statements. F-7 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS DeCrane Aircraft Holdings, Inc. and subsidiaries (the "Company") manufactures avionics components and provides avionics systems integration services in certain niche markets of the commercial, regional and high-end corporate jet aircraft industries. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. As a result of the DLJ Acquisition (Note 2) in August 1998, the Company has presented its financial position, results of operations, changes in stockholders' equity and cash flows on a predecessor/successor basis. Preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. INVENTORIES Inventories are stated at the lower of cost, as determined under the first-in, first-out ("FIFO") method, or market. Costs include materials, labor and manufacturing overhead. PROPERTY AND EQUIPMENT Property and equipment are stated at the Company's allocated fair value for assets acquired through purchase acquisitions and at cost for all new additions, and are depreciated using the straight-line method over their estimated useful lives. Useful lives for machinery and equipment range from two to twenty years. Building and building improvements are depreciated using the straight-line method over their estimated useful lives of forty years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or remaining lease term, whichever is less. Expenditures for maintenance and repairs are expensed as incurred. The costs for improvements are capitalized. Upon retirement or disposal, the cost and accumulated depreciation of property and equipment are reduced and any gain or loss is recorded in income or expense. OTHER ASSETS Goodwill is amortized on a straight-line basis over thirty years. Other intangibles are amortized on a straight-line basis over their estimated useful lives, ranging from five to fifteen years. Deferred financing costs are amortized using either a straight-line or effective interest method, over the term of the related debt. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets and certain intangible assets for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the F-8 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset's carrying value over its fair value is recorded. The Company has recognized no such losses. ACCRUED WARRANTIES Two of the Company's subsidiaries sell a majority of their products to customers with various repair or replacement warranties. The terms of the warranties vary according to the customer and/or the product involved. The most common warranty period is the earlier of: a. 12 to 60 months from the date of delivery to the operator, or b. 42 months from the date of manufacture. Provisions for estimated future warranty costs are made in the period corresponding to the sale of the product. Classification between short and long-term warranty obligations is estimated based on historical trends. DERIVATIVES Market value gains and losses on forward foreign exchange contracts are recognized currently in the consolidated statements of operations. INCOME TAXES Deferred income taxes are determined using the liability method. A deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in the asset and/or liability for deferred taxes. If necessary, valuation allowances are established to reduce deferred tax assets to the amount expected to be realized. FAIR VALUE OF FINANCIAL INSTRUMENTS All financial instruments are held for purposes other than trading. The estimated fair values of all nonderivative financial instruments approximate their carrying amounts at December 31, 1997 and 1998. The estimated fair value of foreign currency forward exchange contracts is based on quotes obtained from various financial institutions that deal in this type of instrument. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS The financial statements of the Company's U.K. and Swiss subsidiaries have been translated into U.S. dollars from their functional currencies, pounds sterling and Swiss francs, respectively, in the consolidated financial statements. Assets and liabilities have been translated at the exchange rate on the balance sheet date and income statement amounts have been translated at average exchange rates in effect during the period. The net translation adjustment is reflected as a component of accumulated comprehensive income or loss within stockholders' equity. Realized foreign currency exchange gains (losses) included in other expenses (income) in the consolidated statements of operations were $71,000, $(72,000), $(411,000) and $(262,000) for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998, respectively. F-9 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. Such costs were $1,195,000 and $832,000 for the eight months ended August 31, 1998 and the four months ended December 31, 1998, respectively. Research and development costs were not significant for the years ended December 31, 1996 and 1997. STOCK OPTION PLAN As permitted under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company measures compensation expense related to the employee stock option plan utilizing the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Refer to Note 14 for information concerning the pro forma effect on results of operations assuming the fair value method of measuring compensation expense was utilized. REVENUE RECOGNITION Revenues from the sale of manufactured products, except for products manufactured under long-term contracts, are recorded when products are shipped. Revenues on long-term contracts are recognized using the percentage-of-completion method based on costs incurred to date compared with total estimated costs at completion. Reimbursements for nonrecurring engineering costs, which are expensed as incurred, are included in revenues at the time a negotiated settlement is reached with the customer. Unbilled accounts receivable were $654,000 and $4,156,000 at December 31, 1997 and 1998, respectively. Unbilled accounts receivable are expected to be billed and collected during the succeeding twelve-month period. STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, cash equivalents include short-term, highly liquid investments with original maturities of three months or less. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive income consists of its reported net income or loss and the change in the foreign currency translation adjustment during a period. The Company adopted SFAS 130 for the period ended December 31, 1998 and has reclassified earlier periods to reflect application of the statement. In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This statement establishes standards for reporting financial and descriptive information about operating segments. Under SFAS No. 131, information pertaining to an entity's operating segments must be reported on the basis that is used internally for evaluating segment performance and making resource allocation determinations. The Company adopted SFAS 131 for the period ended December 31, 1998 and has restated disclosure information in earlier periods to reflect application of the statement (Note 17). In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. It also requires that gains or losses resulting from changes in the values of those derivatives be accounted for depending on the use of the derivative and whether it qualifies for F-10 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) hedge accounting. Adoption of SFAS No. 133 is required for the fiscal year beginning January 1, 2000. Management believes the adoption of SFAS No. 133 will not have a material impact on the Company's consolidated financial position or results of operations. NOTE 2 - THE DLJ ACQUISITION In July 1998, a newly incorporated entity, DeCrane Holdings Co. ("Holdings"), and two other holding companies were organized by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and affiliated funds and entities (the "DLJMB Funds") to carry out a tender offer for all the shares of the Company's common stock (including options to purchase shares which became immediately vested) for $23.00 per share (the "DLJ Acquisition"). At the completion of the tender offer in August 1998, the two other holding companies merged with the Company. All of the Company's old outstanding shares which were tendered were cancelled, non-tendering shareholders were paid out, and as a result the Company became a wholly-owned subsidiary of Holdings. This transaction resulted in a predecessor entity and a successor entity for purposes of reporting the financial results included in the accompanying financial statements. As a result of the tender offer, the Company terminated a debt offering which was in process at that time and recorded a $600,000 pre-tax charge for the eight months ended August 31, 1998 for the estimated costs incurred. The gross purchase price for the Company's shares and options was $186.3 million. Assets acquired and liabilities assumed have been recorded at their estimated fair values based on an independent appraisal and, accordingly, historical values were increased as follows: (i) $4.4 million to inventory; (ii) $2.6 million to fixed assets; and (iii) $50.0 million to certain identifiable intangible assets. The excess of the purchase price over the fair value of the net assets acquired totalling $70.0 million was allocated to goodwill. The inventory step-up was expensed as the goods were sold during the four months ended December 31, 1998. The intangible assets, other than goodwill, are being amortized on a straight-line basis over periods between five and fifteen years. Goodwill is being amortized on a straight-line basis over a period of thirty years. At the completion of the tender offer, the Company was required to repay all of its borrowings under its previous credit facility (Note 10). In order to fund the purchase of the shares in the tender offer, repay the credit facility and pay expenses incurred in connection therewith, the Company: (i) issued $100.0 million of senior subordinated increasing rate notes (the "Bridge Notes") which were subsequently replaced by $100.0 million of 12% Senior Subordinated Notes due 2008 (the "Notes") from the Company's "Units" offering (Note 10), (ii) entered into a new syndicated senior secured loan facility, and (iii) received a $99.0 million equity contribution from Holdings. In conjunction with the debt repayment and refinancing of the Bridge Notes, the Company incurred a $2,229,000 extraordinary charge, net of income tax benefit of $1,494,000 for the four months ended December 31, 1998. The Bridge Notes were purchased by an affiliate of DLJ and accrued interest at 10%. The terms of the issue called for floating rate increases to the prime rates plus 2.5% after six months, and increases of 0.5% every three months subject to a 17.0% maximum, as long as the Bridge Notes remained outstanding. The Bridge Notes were to mature on August 28, 1999, but were refinanced in October 1998 (Note 10). The equity contribution from Holdings represents the net proceeds from Holdings selling all of the shares of its common stock for $65.0 million and shares of its senior redeemable exchangeable preferred stock due 2009 for $34.0 million, along with warrants to purchase 150,000 common shares, to the DLJMB Funds. Preferred stock dividends are payable quarterly at a rate of 14% per annum. Prior to September 30, 2003, dividends are not paid in cash but instead accrete in liquidation value which, in turn, increases the redemption obligation. On or after September 30, 2003, preferred stock dividends are paid in cash. Since F-11 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 - THE DLJ ACQUISITION (CONTINUED) the Company is Holdings' only operating subsidiary and source of cash, the Company may be required to fund Holdings' preferred stock dividend and redemption requirements in the future. The Company incurred non-recurring charges totaling approximately $3.6 million (pre-tax) during the eight months ended August 31, 1998 in conjunction with the DLJ Acquisition. NOTE 3 - 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 $1,250,000 of acquisition related costs. The acquisition was financed with borrowings under the Company's credit facility. The acquisition was accounted for as a purchase and the $57,911,000 difference between the purchase price and the fair value of the net assets acquired was recorded as goodwill and is being amortized on a straight-line basis over 30 years. The consolidated results of operations for the eight months ended August 31, 1998 and the four months ended December 31, 1998 include the operating results of Avtech subsequent to June 25, 1998. DETTMERS On June 30, 1998, the Company purchased certain assets, subject to certain liabilities assumed, of Dettmers Industries Inc. ("Dettmers"). Dettmers is a manufacturer of seats for high-end corporate jet aircraft. The total purchase price was $2,314,000 in cash at closing, including $205,000 of acquisition related costs, plus contingent consideration aggregating a maximum of $2,000,000 payable over four years based on future attainment of defined performance criteria during each of the years in the four-year period ending December 31, 2002. The acquisition was financed with borrowings under the Company's credit facility. The acquisition was accounted for as a purchase and the $2,068,000 difference between the purchase price, excluding the contingent consideration, and the fair value of the net assets acquired was recorded as goodwill and is being amortized on a straight-line basis over 30 years. The amount of contingent consideration paid in the future, if any, will increase goodwill and will be amortized prospectively over the remaining period of the initial 30-year term. The consolidated results of operations for the eight months ended August 31, 1998 and the four months ended December 31, 1998 include the operating results of Dettmers subsequent to June 29, 1998. AUDIO INTERNATIONAL On November 14, 1997, the Company purchased all of the outstanding stock of Audio International, Inc. ("Audio International"). Audio International provides premium, customized aircraft entertainment and cabin management products and systems for the high-end corporate jet market. The total purchase price was $24,726,000 in cash at closing, including $726,000 in acquisition related costs, plus contingent consideration aggregating a maximum of $6,000,000 payable over two years based on future attainment of defined performance criteria. During 1998, Audio International attained the required F-12 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - ACQUISITIONS (CONTINUED) performance criteria and the Company increased the purchase price by $3,000,000, resulting in a corresponding increase to goodwill. The acquisition was funded with borrowings under the Company's revolving line of credit facility. The acquisition was accounted for as a purchase and the $20,110,000 difference between the purchase price, excluding the contingent consideration, and the fair value of the net assets acquired was recorded as goodwill and is being amortized over 30 years. The amount of contingent consideration paid in the future, if any, will increase goodwill and will be amortized prospectively over the remaining period of the initial 30-year term. The consolidated results of operations for the year ended December 31, 1997 include the operating results of Audio International subsequent to November 13, 1997. MINORITY STOCKHOLDER'S 25% INTEREST On February 20, 1996, the Company purchased the remaining 25% of a subsidiary's stock it did not already own from the subsidiary's minority stockholder (the "Minority Stockholder") for a total purchase price of $5,748,000, including $334,000 of acquisition related costs and expenses (the "Minority Interest Acquisition"). The purchase price consisted of $4,873,000 paid in cash at closing and a $600,000 non-interest bearing obligation payable to the Minority Stockholder. The cash portion of the purchase price was funded with the proceeds from the sale of preferred stock and redeemable warrants. The acquisition was accounted for as a purchase and the $5,498,000 difference between the purchase price and 25% of the fair value of the net assets acquired was recorded as goodwill and is being amortized over 26 years, representing the remaining useful life of the goodwill recorded upon the initial 75% acquisition in October 1991. The consolidated results of operations for the year ended December 31, 1996 include 100% of the operating results of the subsidiary subsequent to February 20, 1996. For the periods prior to February 20, 1996, the consolidated results of operations include a charge for the Minority Stockholder's 25% ownership interest. AEROSPACE DISPLAY SYSTEMS On September 18, 1996, the Company purchased for cash substantially all of the assets, subject to certain liabilities assumed, of the Aerospace Display Systems division ("ADS") of Allard Industries, Inc. ("Allard"). The total purchase price was $13,395,000, including $402,000 in acquisition related costs. ADS develops and manufactures dichroic liquid crystal displays and modules for commercial and military avionics systems. The acquisition was funded with the proceeds from the sale of preferred stock, convertible subordinated notes and redeemable warrants, borrowings under the Company's revolving line of credit and a $2,000,000 non-interest bearing obligation payable to certain Allard stockholders. The acquisition was accounted for as a purchase and the $7,425,000 difference between the purchase price and the fair value of the net assets acquired was recorded as goodwill and is being amortized over 30 years. The consolidated results of operations for the year ended December 31, 1996 include the operating results of ADS subsequent to September 18, 1996. F-13 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - ACQUISITIONS (CONTINUED) ELSINORE On December 5, 1996, the Company acquired Elsinore Aerospace Services, Inc. and the Elsinore Engineering Services Division of Elsinore, L.P. (collectively, "Elsinore"). Elsinore provides engineering services to the commercial aircraft industry. The total purchase price was $2,443,000, including $300,000 of acquisition related costs. The purchase price consisted of $1,000,000 paid in cash at closing and a $1,250,000 15% promissory note payable to the sellers. The purchase agreement provided for an adjustment of the purchase price should the amount of working capital decline as of the closing date. The purchase price was allocated to the assets acquired and liabilities assumed using estimated fair values and $2,585,000 was assigned to goodwill, subject to final determination of the purchase price. During 1997, the Company and the sellers agreed to reduce the purchase price by $155,000 to reflect the decline in working capital as of the closing date and, as a result, goodwill was decreased by a corresponding amount during 1997. NOTE 4 - PRO FORMA RESULTS OF OPERATIONS FOR THE DLJ AND OTHER ACQUISITIONS Unaudited pro forma consolidated results of operations are presented in the table below for the years ended December 31, 1997 and 1998 and are pro forma for the DLJ and other acquisitions as if they were consummated at the beginning of each year.
PRO FORMA FOR THE YEAR ENDED DECEMBER 31, ---------------------- 1997 1998 ---------- ---------- Revenues............................................................................... $ 160,054 $ 173,297 Loss before extraordinary item......................................................... (10,000) (3,548)
The above information reflects adjustments for inventory step-up, depreciation, amortization, general and administrative expenses, and interest expense based on the new cost basis and debt structure of the Company. In 1997 and 1998, income excludes the effect of a $2,078,000 and $2,229,000 extraordinary loss, respectively incurred in connection with the Company's debt refinancings (Notes 2 and 14). NOTE 5 - ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS ACCOUNTS RECEIVABLE Accounts receivable is net of an allowance for doubtful accounts of $487,000 and $581,000 at December 31, 1997 and 1998, respectively. The Company is potentially subject to concentrations of credit risk as the Company relies heavily on customers operating in the domestic and foreign commercial and high-end corporate jet aircraft industries. Generally, the Company does not require collateral or other security to support accounts receivable subject to credit risk. Under certain circumstances, deposits or cash-on-delivery terms are required. The Company maintains reserves for potential credit losses and generally, such losses have been within management's expectations. F-14 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMERS (CONTINUED) SIGNIFICANT CUSTOMERS Two customers each accounted for more than 10% of the Company's consolidated revenues, as follows:
YEAR ENDED DECEMBER FOUR MONTHS 31, EIGHT MONTHS ENDED -------------------- ENDED AUGUST DECEMBER 31, 31, 1998 1998 1996 1997 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) --------- --------- ------------- ------------- Customer A.......................................... 15.8% 19.0% 17.3% 20.1% Customer B.......................................... 7.2% 11.2% 7.6% 5.6%
Complete loss of Customer A could have a significant adverse impact on the results of operations expected in future periods. During the year ended December 31, 1997, Customer A acquired another customer of the Company. The above amounts for Customer A include the Company's revenue from the acquired customer after its acquisition. For the year ended December 31, 1997, revenue from Customer A would have been 20.9% had the acquisition been consummated on January 1, 1997. NOTE 6 - INVENTORIES Inventories are comprised of the following as of December 31, 1997 and 1998 (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ----------- ----------- Raw material........................................................ $ 14,224 $ 19,221 Work-in process..................................................... 4,655 7,231 Finished goods...................................................... 7,097 7,829 ----------- ----------- Total inventories................................................. $ 25,976 $ 34,281 ----------- ----------- ----------- -----------
Included above are costs relating to long-term contracts recognized on the percentage of completion method of $125,000 and $897,000 at December 31, 1997 and 1998, respectively. NOTE 7 - PROPERTY AND EQUIPMENT Property and equipment includes the following as of December 31, 1997 and 1998 (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ----------- ----------- Machinery and equipment............................................. $ 18,151 $ 12,576 Tooling............................................................. 3,133 2,162 Computer equipment, furniture and fixtures.......................... 3,660 3,230 Land, buildings and leasehold improvements.......................... 3,580 11,967 ----------- ----------- Total cost........................................................ 28,524 29,935 Accumulated depreciation and amortization......................... (14,470) (1,775) ----------- ----------- Net property and equipment...................................... $ 14,054 $ 28,160 ----------- ----------- ----------- -----------
F-15 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - PROPERTY AND EQUIPMENT (CONTINUED) Property and equipment under capital leases included above consists of the following as of December 31, 1997 and 1998 (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ------------- ------------- Machinery and equipment............................................. $ 1,160 $ 693 Computer equipment, furniture and fixtures.......................... 455 243 ------ ----- Total cost........................................................ 1,615 936 Accumulated depreciation and amortization......................... (523) (204) ------ ----- Net property and equipment...................................... $ 1,092 $ 732 ------ ----- ------ -----
Depreciation of machinery and equipment under capital leases is included in cost of sales in the consolidated financial statements. NOTE 8 - OTHER ASSETS Other assets includes the following as of December 31, 1997 and 1998 and is net of accumulated amortization for the respective periods as parenthetically noted (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ----------- ----------- Goodwill (net of $1,682 and $1,839)................................. $ 38,592 $ 167,836 Deferred financing costs (net of $64 and $343)...................... 399 8,787 Other intangibles (net of $194 and $1,317).......................... 596 48,708 Other non-amortizable assets........................................ 380 999 ----------- ----------- Other assets, net................................................. $ 39,967 $ 226,330 ----------- ----------- ----------- -----------
NOTE 9 - ACCRUED EXPENSES Accrued expenses are comprised of the following as of December 31, 1997 and 1998 (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ------------- ----------- Salaries, wages, compensated absences and payroll related taxes..... $ 3,410 $ 6,147 Additional acquisition consideration................................ -- 3,000 Accrued interest.................................................... 152 2,946 Other accrued expenses.............................................. 3,349 6,373 ------ ----------- Total accrued expenses............................................ $ 6,911 $ 18,466 ------ ----------- ------ -----------
NOTE 10 - BORROWINGS SHORT-TERM BORROWINGS--The Company's Swiss subsidiary has a short-term revolving line of credit with a Swiss bank under which Swiss franc denominated borrowings of $568,000 and $283,000 were outstanding at December 31, 1997 and 1998, respectively. Interest on the line accrues at the bank's prime rate (5.25% F-16 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - BORROWINGS (CONTINUED) and 4.875% at December 31, 1997 and 1998, respectively) plus 0.25%. The line of credit is guaranteed by the Company. LONG-TERM BORROWINGS--Long-term obligations outstanding include the following as of December 31, 1997 and 1998 (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ----------- ----------- Credit facilities Revolving lines of credit......................................... $ 36,000 $ 5,800 Term debt......................................................... -- 79,888 12% Senior Subordinated Notes due 2008, with interest payable semi- annually commencing on March 30, 1999............................. -- 100,000 Capital lease obligations and equipment term financing, with interest at 4.34 % to 18.08%, secured by equipment.......................... 547 367 Other............................................................... 1,723 427 ----------- ----------- Total long-term obligations................................... 38,270 186,482 Less current portion.......................................... (858) (1,529) ----------- ----------- Long-term obligations, less current portion................. $ 37,412 $ 184,953 ----------- ----------- ----------- -----------
PREDECESSOR CREDIT FACILITY Prior to August 31, 1998, the Company had a credit facility with a group of banks for a $105 million senior revolving line of credit. Borrowings under the credit facility were secured by the Company's assets. The Company, at its option, could elect to pay interest on the credit facility borrowings based on either the prime rate or interbank offered rate ("IBOR") plus defined margins. The Company was required to pay a commitment fee, up to a maximum 0.375%, on the unused portion of the credit facility. The weighted-average interest rate on borrowings outstanding was 7.03% as of December 31, 1997. SUCCESSOR CREDIT FACILITY In connection with the DLJ Acquisition, the Company was required to repay all of its borrowings under the predecessor credit facility and entered into a new credit facility. The new credit facility provides for term loan borrowings in the aggregate principal amount of $80.0 million and revolving loan borrowings up to an aggregate principal amount of $50.0 million. Principal payments under the term loan borrowings are due in increasing amounts over the next seven years and all borrowings under the revolving loan facility must be repaid within six years. Loans under the new credit facility generally bear interest based on a margin over, at the Company's option, the prime rate or the Euro-Dollar rate. Currently, the applicable margins are 1.50%-1.75% for prime rate borrowings and 2.75%-3.00% for Euro-Dollar borrowings. The Company is subject to certain commitment fees under the facility as well as the maintenance of certain financial ratios, cash flow results and other restrictive covenants. In January 1999, term loan borrowings were increased to $99.9 million to fund the acquisition of PATS, Inc. (Note 21). F-17 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - BORROWINGS (CONTINUED) 12% SENIOR SUBORDINATED NOTES On October 5, 1998 (subsequent to the DLJ Acquisition and financing), the Bridge Notes were repaid with the net proceeds from the Units offering. Each Unit consists of $1,000 principal amount of the Notes and one warrant (collectively, the "Warrants") to purchase shares of common stock of Holdings ("Holdings Common Stock"). The Notes will mature on September 30, 2008. Interest on the Notes is payable semi-annually on March 30 and September 30 of each year, commencing on March 30, 1999. The Notes are unsecured general obligations of the Company and are subordinated in right of payment to all existing and future senior indebtedness of the Company, including indebtedness pursuant to the credit facility. Prior to the Notes maturing, the Company may redeem all or some of the Notes at a redemption price which may include a premium. In the event of a change in control, the holders may require the Company to repurchase the Notes for a redemption price which may also include a premium. Each Warrant entitles the holder thereof, subject to certain conditions, to purchase 1.55 shares of Holdings Common Stock at an exercise price of $23.00 per share. The Warrants, valued at $1,200,000, will be exercisable at the time they are registered and, unless earlier exercised, will expire on September 30, 2008. AGGREGATE MATURITIES The aggregate maturities of long-term obligations are as follows as of December 31, 1998 (amounts in thousands):
YEAR ENDING DECEMBER 31, 1999................................................................................................ 1,529 2000................................................................................................ 2,722 2001................................................................................................ 4,866 2002................................................................................................ 7,905 2003................................................................................................ 10,522 Thereafter.......................................................................................... 158,938 ---------- Total long-term obligations..................................................................... $ 186,482 ---------- ----------
NOTE 11 - INCOME TAXES Income (loss) before income taxes and extraordinary item was taxed under the following jurisdictions (amounts in thousands):
YEAR ENDED DECEMBER EIGHT MONTHS FOUR MONTHS 31, ENDED ENDED -------------------- AUGUST 31, DECEMBER 31, 1998 1998 1996 1997 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) --------- --------- ------------- --------------- Domestic........................................ $ (855) $ 7,509 $ 5,637 $ (3,345) Foreign......................................... 750 1,089 444 353 --------- --------- ------ ------- Total......................................... $ (105) $ 8,598 $ 6,081 $ (2,992) --------- --------- ------ ------- --------- --------- ------ -------
F-18 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - INCOME TAXES (CONTINUED) The provisions for income taxes (benefit) are as follows (amounts in thousands):
YEAR ENDED DECEMBER EIGHT MONTHS FOUR MONTHS 31, ENDED ENDED -------------------- AUGUST 31, DECEMBER 31, 1998 1998 1996 1997 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) --------- --------- ------------- --------------- Current U.S. federal.................................. $ 269 $ 3,231 $ 3,835 $ 1,560 State and local............................... 194 968 1,275 699 Foreign....................................... 161 426 121 145 --------- --------- ------------- ------- Total current............................... 624 4,625 5,231 2,404 --------- --------- ------------- ------- Deferred U.S. federal.................................. 70 (1,021) (1,932) (4,150) State and local............................... 21 (279) (435) (816) Foreign....................................... (3) 19 28 (106) --------- --------- ------------- ------- Total deferred.............................. 88 (1,281) (2,339) (5,072) --------- --------- ------------- ------- Total provision............................. $ 712 $ 3,344 $ 2,892 $ (2,668) --------- --------- ------------- ------- --------- --------- ------------- -------
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal rate to the income (loss) before income taxes and extraordinary item as a result of the following differences (amounts in thousands):
YEAR ENDED DECEMBER 31, EIGHT MONTHS FOUR MONTHS -------------------- ENDED AUGUST ENDED DECEMBER 31, 1998 31, 1998 1996 1997 (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) --------- --------- ------------- --------------- Income tax (benefit) at U.S. statutory rates.... $ (36) $ 2,923 $ 2,068 $ (1,017) Increase (decrease) resulting from Book benefit not provided for net operating loss carryforwards.......................... 172 -- -- -- Amortization of assets and other expenses not deductible for income tax purposes.......... 137 441 594 782 Decrease in deferred tax asset valuation allowance................................... -- (488) -- (2,575) State income taxes, net of federal benefit.... 157 482 550 (25) Tax on earnings of subsidiary not consolidated for tax purposes............................ 92 -- -- -- Lower tax rates on earnings of foreign subsidiaries................................ (65) (116) (50) (36) Other, net.................................... 255 102 (270) 203 --------- --------- ------ ------- Income tax (benefit) at effective rates..... $ 712 $ 3,344 $ 2,892 $ (2,668) --------- --------- ------ ------- --------- --------- ------ -------
F-19 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - INCOME TAXES (CONTINUED) Deferred tax liabilities (assets) are comprised of the following as of December 31, 1997 and 1998 (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ----------- ----------- Gross deferred tax liabilities Intangible assets.................................................. $ 308 $ 18,320 Tax effect on earnings of subsidiary not consolidated for tax purposes......................................................... 2,688 -- Property and equipment............................................. 688 4,531 Other.............................................................. 409 416 ----------- ----------- Gross deferred tax liabilities................................... 4,093 23,267 ----------- ----------- Gross deferred tax (assets) Inventory.......................................................... (2,811) (2,396) Loss carryforwards................................................. (865) (6,183) Accrued expenses................................................... (697) (1,657) Other.............................................................. (537) (341) ----------- ----------- Gross deferred tax (assets)...................................... (4,910) (10,577) ----------- ----------- Deferred tax assets valuation allowance.............................. 2,575 -- ----------- ----------- Net deferred tax liability......................................... $ 1,758 $ 12,690 ----------- ----------- ----------- -----------
The balance sheet classification of the net deferred tax liabilities as of December 31, 1997 and 1998 are as follows (amounts in thousands):
1997 1998 (PREDECESSOR) (SUCCESSOR) ------------- ----------- Noncurrent deferred tax liability.................................... $ 1,758 $ 16,990 Current deferred tax asset........................................... -- (4,300) ------ ----------- Net deferred tax liability......................................... $ 1,758 $ 12,690 ------ ----------- ------ -----------
Prior to 1997, the Company incurred losses and accordingly provided a valuation allowance for its domestic deferred net tax assets. The deferred tax asset valuation allowance was reduced in 1997 by $488,000 to reflect the amount of federal and state tax loss carryforwards utilized to reduce 1997 current income taxes. During the eight months ended August 31, 1998 and the four months ended December 31, 1998, the Company incurred net operating losses for tax purposes of approximated $1,528,000 and $486,000, respectively. The losses were caused by an $8,880,000 tax deduction for stock options exercised, $3,632,000 of nonrecurring charges and a $3,724,000 pre-tax extraordinary charge. The net operating loss tax benefits for both periods were carried back to 1997 for federal income tax purposes and carried forward for state income tax purposes. The 1998 net operating losses resulted in $2,545,000 of taxes being refundable as of December 31, 1998 and are included in prepaid expenses and other current assets. Even though the Company incurred tax losses during 1998, management believes that it is more likely than not that the Company will generate taxable income sufficient to realize the tax benefit associated with the future deductible deferred tax assets and loss carryforwards prior to their expiration. As a result, the Company reduced the valuation allowance by $2,575,000 during the four months ended December 31, 1998. F-20 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - INCOME TAXES (CONTINUED) The Company has approximately $17,400,000 and $600,000 of total loss carryforwards, which include net operating losses acquired in the Avtech aquisition, available for federal and state income tax purposes, respectively. In conjunction with the Avtech acquisition, the Company acquired federal loss carryforwards of $13,700,000 that are subject to separate return limitation rules, as defined in the Internal Revenue Code, and expire in 2018. The remaining federal and state carryforwards expire in varying amounts through 2010 and 2018, respectively. The amount of federal loss carryforwards that may be utilized in the future are subject to limitations because of the occurrence of changes in control, as defined in the Internal Revenue Code. Undistributed earnings of foreign subsidiaries are not material to the consolidated financial statements. As such, foreign taxes that may be due, net of U.S. foreign tax credits, have not been provided. NOTE 12 - DERIVATIVE FINANCIAL INSTRUMENTS The Company does not use derivative financial instruments for trading purposes but only to manage well-defined foreign exchange rate risks. The Company enters into Swiss franc ("CHF") forward exchange contracts to purchase Swiss francs as a general economic hedge against foreign inventory procurement and manufacturing costs. Market value gains and losses on forward foreign exchange contracts are recognized in the consolidated statements of operations and aggregated a realized net gain (loss) of ($316,000), ($487,000), $323,000 and $146,000 for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998, respectively. At December 31, 1998, the Company had no open forward exchange contracts. The Company believes exposure to derivative credit losses is minimal in the event of nonperformance by the senior lender because any amounts due, but not paid, to the Company by the senior lender could be offset against the Company's principal and interest payments to the lender. NOTE 13 - SUCCESSOR CAPITAL STRUCTURE In connection with the DLJ Acquisition, all of the Company's old outstanding shares which were tendered were cancelled and non-tendering shareholders were paid out. The Company was authorized to issue 100 new common shares ($.01 par value) all of which are issued and outstanding at December 31, 1998. NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS REORGANIZATION AND REVERSE STOCK SPLIT On February 19, 1997, the Company reorganized as a Delaware corporation. In conjunction with the reorganization, the Company established a $.01 par value for its cumulative convertible preferred stock and common stock and increased the number of common shares and preferred shares authorized to 9,924,950 and 18,314,018 shares (which includes 10,000,000 shares of a newly designated series of preferred stock), respectively. F-21 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED) Effective March 25, 1997, the Company effected a 3.53-for-1 reverse stock split. All common share information set forth in the consolidated financial statements and notes thereto has been restated to reflect the reverse stock split. RECAPITALIZATION AND CONSUMMATION OF INITIAL PUBLIC OFFERING In January and March 1997, the holders of certain securities agreed to a plan for the recapitalization of the Company. Completion of the recapitalization was a condition to the consummation of the Company's initial public offering (the "IPO") and, was effective concurrent therewith. The IPO was consummated on April 16, 1997. The recapitalization provided for: (i) the conversion of all 6,847,705 shares of issued and outstanding cumulative convertible preferred stock into 1,941,804 shares of common stock; (ii) the cashless exercise and conversion of all 52,784 and 9,355 issued and outstanding preferred stock warrants and common stock warrants, respectively, into a total of 16,585 shares of common stock; (iii) the cashless exercise of 508,497 mandatorily redeemable common stock warrants (the "Redeemable Warrants") into a total of 507,708 shares of common stock; and (iv) the cancellation of 95,368 Redeemable Warrants. Redeemable Warrants exercisable into 208,968 common shares remained after the recapitalization. Of this amount, 138,075 Redeemable Warrants were cancelled upon the consummation of the IPO and repayment of the Company's senior subordinated debt and convertible notes in accordance with the terms of the respective warrant agreements. Redeemable Warrants exercisable into 70,893 common shares remained after the recapitalization and the IPO and application of the net proceeds therefrom. Concurrent with the consummation of the IPO, the mandatory redemption feature of these warrants was terminated and, as a result, the value ascribed thereto was reclassified to stockholders' equity as additional paid-in capital. On April 16, 1997, the Company completed the IPO and sold 2,700,000 shares of common stock for $12.00 per share. Proceeds from the IPO of $30,132,000, net of $2,268,000 for underwriting discounts and commissions, together with approximately $12,775,000 of proceeds from borrowings under a new credit facility were used to repay amounts due under the Company's senior revolving line of credit, senior term notes, senior subordinated notes and convertible notes. FOLLOW-ON EQUITY OFFERING In April 1998, the Company sold 2,206,177 shares of common stock for $17.00 per share. Net proceeds from the offering of $34,815,000 were used to partially repay borrowings outstanding under the Company's senior credit facility. DEBT REPAID WITH IPO PROCEEDS In April 1997, the Company used the net proceeds from the IPO, together with approximately $12,775,000 of proceeds from borrowings under a credit facility, to repay the following: (i) senior revolving line of credit borrowings of $15,356,000; (ii) senior term notes aggregating $16,531,000; (iii) senior subordinated notes payable to related parties aggregating $7,000,000; and (iv) convertible notes payable to related parties aggregating $3,000,000. In conjunction with the debt repayment, the Company incurred a $3,436,000 extraordinary charge, before an income tax benefit of $1,358,000, which is comprised of: (i) a F-22 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED) $1,943,000 write-off of deferred financing costs; (ii) a $1,149,000 write-off of unamortized original issued discounts; and (iii) a $344,000 charge for a prepayment penalty and other related expenses. MANDATORILY REDEEMABLE COMMON STOCK WARRANTS The table below summarizes Redeemable Warrant transactions during the years ended December 31, 1996, and 1997 (amounts in thousands, except share data).
REDEEMABLE WARRANTS ---------------------- NUMBER OF COMMON AMOUNT SHARES --------- ----------- Balance, December 31, 1995................................................................. $ 1,633 446,296 Issued in conjunction with sale of Preferred Stock to finance Minority Interest acquisition.............................................................................. 492 194,618 Issued in conjunction with sale of Convertible Notes and Preferred Stock to finance ADS acquisition.............................................................................. 248 98,158 Issued pursuant to anti-dilution provisions upon the sale of Preferred Stock............... 7 2,868 Issued in conjunction with debt agreement amendment........................................ 179 70,893 Adjustment to estimated redemption value................................................... 4,320 -- --------- ----------- Balance, December 31, 1996................................................................. 6,879 812,833 Adjustment to redemption value to reflect the IPO per share price.......................... 2,203 -- Cashless exercise and conversion pursuant to the Recapitalization.......................... (6,103) (508,497) Cancelled pursuant to the Recapitalization................................................. (1,143) (95,368) Cancelled upon debt repayment with IPO proceeds............................................ (1,657) (138,075) Reclassification of warrants no longer mandatorily redeemable to additional paid-in capital.................................................................................. (179) (70,893) --------- ----------- Balance, December 31, 1997................................................................. $ -- -- --------- ----------- --------- -----------
Prior to the IPO, the warrant holders had the right, after various dates and contingent upon certain events, to require the Company to redeem the warrants and, in certain instances, to purchase the common stock issued upon exercise of the warrants. In all instances, the redemption or purchase price, was equal to the greater of either fair market value, book value, or a value based upon a defined formula which included, in part, an earnings multiple. The Redeemable Warrants' value was subsequently adjusted to reflect estimated redemption value. Concurrent with the consummation of the recapitalization and IPO, the Company increased the redemption value by $2,203,000 to reflect the $12.00 per share IPO price. The adjustments to redemption value were charged (credited) to accumulated deficit. CUMULATIVE CONVERTIBLE PREFERRED STOCK On February 19, 1997, the Company reorganized as a Delaware corporation. In conjunction with the reorganization, the Company established a $.01 par value for its preferred stock and increased the number of preferred shares authorized to 18,314,018 shares, which includes 10,000,000 shares of a newly designated series of preferred stock. As part of the recapitalization, which occurred concurrent with the IPO, all issued and outstanding shares of preferred stock were converted into .28357 of a share of common stock. The recapitalization also provided for the cashless exercise and conversion of all preferred stock warrants F-23 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED) into 10,206 common shares. There were no shares of preferred stock or warrants to purchase preferred stock outstanding as of December 31, 1997. On February 9, 1996, certain members of Company management purchased for $112,000 an aggregate of 75,000 preferred shares. On February 20, 1996, the Company sold 2,000,000 preferred shares at $3.25 per share and issued Redeemable Warrants to purchase 194,618 common shares to a related party (Note 19). Proceeds from the sale aggregating $492,000 were ascribed to the Redeemable Warrants to reflect their estimated fair market value on the issuance date. The proceeds from the sale, net of issuance costs of $558,000, were used to fund the Minority Interest Acquisition. On September 18, 1996, the Company sold 750,000 preferred shares at $4.00 per share and issued Redeemable Warrants to purchase 49,079 common shares to related parties (Note 19). Proceeds from the sale aggregating $124,000 were ascribed to the Redeemable Warrants to reflect their estimated fair market value on the issuance date. The proceeds from the sale, net of issuance costs of $137,000, were used to fund the ADS acquisition. COMMON STOCK On February 19, 1997, in conjunction with reorganizing as a Delaware corporation, the Company established a $.01 par value for its common stock and increased to 9,924,950 the number of common shares authorized. As of December 31, 1997, a total of 527,156 common shares were reserved for issuance upon exercise of stock options outstanding under the Company's stock option plan. As part of the recapitalization, the holders of the non-redeemable warrants agreed to the cashless exercise and conversion of all warrants outstanding into 6,379 common shares. Redeemable Warrants to purchase 70,893 common shares at an exercise price of $14.11 per share remained after the recapitalization. Concurrent with the consummation of the IPO, the mandatory redemption feature of these warrants was terminated and, consequently, became non-redeemable warrants. In December 1997, the holders of these warrants elected to exercise all of the warrants on a cashless basis and convert the warrants into 16,130 common shares. No non-redeemable warrants were outstanding as of December 31, 1997. During 1998 in connection with the DLJ Acquisition all stock options became 100% vested and were either exercised or cancelled as of August 31, 1998. The following table summarizes the status of the F-24 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED) Company's stock option plan at December 31, 1996, 1997, and 1998 and the activity for the years ended December 31, 1996 and 1997, and the eight months ended August 31, 1998:
1996 1997 1998 ---------------------- ---------------------- ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- ----------- --------- ----------- ---------- ----------- Options outstanding at beginning of year........................................ 208,423 $ 0.529 355,001 $ 1.724 501,260 $ 6.089 Granted...................................... 147,031 3.413 163,662 15.574 75,000 16.85 Exercised.................................... -- -- -- -- (575,692) 7.496 Cancelled.................................... (453) 0.529 (17,403) 6.228 (568) 1.234 --------- --------- ---------- Options outstanding at end of year........... 355,001 1.724 501,260 6.089 -- -- --------- --------- ---------- ----------- --------- --------- ---------- ----------- Options exercisable at end of year........... 141,845 0.633 200,444 0.921 -- -- --------- --------- ---------- ----------- --------- --------- ---------- -----------
The Company believes the per share exercise price of options granted through February 1996 and subsequent to January 1997 (through August 31, 1998) approximated the fair market value of the underlying common stock on the grant date. The exercise price of certain options granted from February 1996 to January 1997 were deemed to be below the fair market value of the underlying common stock on the grant date and such difference is being recognized as additional compensation expense in the consolidated financial statements on a straight line basis over the vesting period of the underlying options. Compensation expense recognized was $158,000, $240,000 and $332,000 for the years ended December 31, 1996 and 1997 and the eight months ended August 31, 1998, respectively. The Company measures compensation expense related to its employee stock option plan using the intrinsic value method as prescribed by APB Opinion No. 25. Had compensation cost for the Company's stock option plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS 123, the Company's net income (loss) would have been as follows (amounts in thousands):
YEAR ENDED DECEMBER 31, EIGHT MONTHS ------------------------ ENDED AUGUST 1996 1997 31, 1998 (PREDECESSOR) (PREDECESSOR) ------------------------ ------------- Net income (loss) As reported............................................................. $ (817) $ 3,176 $ 3,189 Pro forma............................................................... (822) 3,129 2,699 Weighted-average fair value of options granted Compensatory stock options.............................................. 5.91 5.70 5.70 Non-compensatory stock options.......................................... 0.10 5.08 5.08
For purposes of the pro forma presentation, the fair value for options granted subsequent to the IPO (April 16, 1997) was estimated on the dates of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 5.8%; expected dividend yield of 0%; F-25 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - PREDECESSOR CAPITAL STRUCTURE AND TRANSACTIONS (CONTINUED) expected life of 2.5 years; and expected stock price volatility of 39.9%. The fair value for options granted prior to the IPO was estimated on the dates of grant using a minimum value method, assuming a risk-free interest rate of 5.5% to 5.7% with no projected dividend yields. Unlike other permitted option pricing models, the minimum value method excludes stock price volatility, which could not be reasonably estimated for the Company prior to the IPO. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models, as well as the minimum value method, do not necessarily provide a reliable single measure of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of options granted in fiscal years after December 31, 1994 is amortized to expense over the options' vesting period. The effects of applying SFAS 123 in providing the pro forma disclosures are not likely to be representative of the effects on the reported consolidated financial statements in future years. NOTE 15 - COMMITMENTS AND CONTINGENCIES LITIGATION The Company is a party to a license agreement with McDonnell Douglas Corporation (now part of The Boeing Company) pursuant to which the Company may request certain data in order to design and market modifications to aircraft manufactured by McDonnell Douglas. The agreement provides that the Company will pay McDonnell Douglas a royalty of five percent of the net sales price of all modifications sold by the Company for which the Company has requested data from McDonnell Douglas. The Company has requested data for a single modification, which modification the Company believes is exempt from the obligation to pay royalties under the agreement. In 1996, McDonnell Douglas made a demand for $650,000 for royalties. The Company does not believe that it is obligated to McDonnell Douglas in any amount. However, there can be no assurance that the Company will not be required to pay royalties to McDonnell Douglas. Certain subsidiaries of the Company have recently been served in an action filed in federal court by American International Airways, Inc., relating to the conversion and modification of two Boeing 747 aircraft from passenger to freighter configuration. No specific amount of damages is sought. The events in question occurred prior to the Company's purchase of the relevant businesses from its prior owner; the Company intends to deny any liability, and further believes that it is indemnified with respect to any such liabilities. The Company and two of its subsidiaries have confirmed that they are indemnified for any liability in the action filed by American International Airways; and for the further cost of defense of the action. A third subsidiary was named as a defendant but has been dismissed from the case without prejudice. On July 21, 1998, TAAM Associates, Inc. commenced an action in Delaware Chancery Court on behalf of a purported class of stockholders of the Company against the Company, its directors, Donaldson, Lufkin & Jenrette, Inc. and certain of its affiliates ("DLJ"), alleging, among other things, that the directors had breached their fiduciary duties by entering into the merger agreement related to the DLJ Acquisition F-26 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED) without engaging in an auction or "active market check" and, therefore, agreed to terms that were unfair and inadequate from the standpoint of the Company's stockholders. On July 24, 1998, the plaintiffs amended the complaint by repeating the allegations in the initial complaint and adding allegations that: (i) the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "14D-9") contained material misstatements or omissions; (ii) the termination fees were unreasonable; and (iii) the directors who approved the DLJ Acquisition had conflicts of interest. The complaint sought a preliminary and permanent injunction barring defendants from proceeding with the transaction or, if the transaction is consummated, an order rescinding it or awarding damages, together with interest, and an award of attorneys' fees and litigation expenses. Without admitting any wrongdoing in the action, in order to avoid the burden and expense of further litigation, the Company, DLJ, and the individual defendants reached an agreement in principle with the plaintiffs which contemplates settlement of the action. The Company, DLJ and the individual defendants and the plaintiffs entered into a memorandum of understanding (the "Memorandum of Understanding"), pursuant to which the parties would, subject to certain facts being confirmed through discovery which has not been completed, enter into a settlement agreement which would be subject to approval by the Court of Chancery. The Memorandum of Understanding required the Company to provide additional disclosures in an amendment to the 14D-9 which has occurred, and for a complete release and settlement of all claims, whether asserted directly, derivatively or otherwise, against defendants, or any of their affiliates, directors, officers, employees or agents arising out of the facts set forth in the complaint. The Memorandum of Understanding contemplates that, in connection with the benefit conferred, plaintiffs' counsel will apply to the Court of Chancery for an award of attorney's fees and litigation expenses in an amount not exceeding $375,000, which application, the defendants have agreed not to oppose. On August 5, 1998, the Company and its chief executive officer were served in an action filed in state court in California by the Company's chief financial officer and secretary claiming that he is due additional compensation in the form of stock options, and claiming fraud, negligent misrepresentation and breach of contract in connection therewith. On September 22, 1998, the plaintiff amended the compliant by repeating the allegations in the initial compliant and adding allegations of fraudulent misrepresentation in violation of certain provisions of the California Labor Code (for which doubled damages are sought), promissory estoppel, and wrongful discharge as a violation of public policy (as a result of allegations made by the plaintiff of improprieties in connection with the fairness opinion with respect to the DLJ Acquisition). The action seeks not less than $1.5 million plus punitive damages and costs. The action is in its early stage of development and discovery has not been completed. The Company intends to vigorously defend against such claim. The plaintiff's employment with the Company was terminated. The Canadian Transportation Safety Board ("TSB") has notified the Company that as part of its investigation of the crash of Swissair Flight 111 on September 2, 1998, the TSB has found burned wire which was attached to the in-flight entertainment system installed on certain Swissair aircraft by a subsidiary of the Company. The TSB has advised the Company that it does not have evidence that the system the Company installed malfunctioned or failed during the flight. The Company has been requested by attorneys for families of persons who died aboard the flight to put its insurance carrier on notice of a potential claim by such families. The Company and its subsidiaries are also involved in other routine legal and administrative proceedings incident to the normal conduct of business. Management believes the ultimate disposition of F-27 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED) these matters, as well as the matters discussed in the preceding paragraphs, will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. LEASE COMMITMENTS The Company leases certain facilities and equipment under various capital and operating leases. Certain leases require payment of property taxes and include escalation clauses. Future minimum capital and operating lease commitments under non-cancelable leases are as follows as of December 31, 1998 (amounts in thousands):
CAPITAL OPERATING LEASES LEASES ----------- ----------- Year ending December 31, 1999....................................................................................... $ 230 $ 3,181 2000....................................................................................... 99 2,758 2001....................................................................................... 41 2,246 2002....................................................................................... 17 2,195 2003....................................................................................... 9 1,941 2004 and thereafter........................................................................ -- 4,811 ----- ----------- Total minimum payments required............................................................ 396 $ 17,132 ----------- ----------- Less amount representing future interest cost.............................................. (29) ----- Recorded obligation under capital leases................................................. $ 367 ----- -----
Total rental expense charged to operations for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998 was $1,614,000, $2,065,000, $2,303,000 and $1,095,000 respectively. F-28 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16 - CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION The Company paid the following amounts in cash (amounts in thousands):
FOUR MONTHS YEAR ENDED DECEMBER 31, EIGHT MONTHS ENDED ---------------------------- ENDED AUGUST DECEMBER 1996 1997 31, 1998 31, 1998 (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) ---------------------------- ------------- ----------- Interest.................................... $ 2,983 $ 2,842 $ 2,227 $ 3,706 Income taxes................................ 132 300 4,825 1,328
INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES Certain noncash investing and financing transactions occurred as follows (amounts in thousands):
EIGHT YEAR ENDED DECEMBER MONTHS FOUR MONTHS 31, ENDED ENDED -------------------- AUGUST 31, DECEMBER 1996 1997 1998 31, 1998 (PREDECESSOR) (PREDECESSOR) (SUCCESSOR) -------------------- ----------- ----------- Refinancing of Bridge Notes with proceeds from Units offering................................... $ -- $ -- $ -- $ 100,000 Additional acquisition consideration.............. -- -- -- 3,000 Debt incurred for the acquisition of machinery and equipment........................................ 414 182 116 48 Financing provided by sellers in connection with acquisitions..................................... 3,492 -- -- -- Detail of acquisitions: Fair value of assets acquired, net of cash acquired...................................... $ 20,887 $ 26,178 $ 90,377 -- Liabilities assumed............................. (2,687) (2,581) (4,569) -- --------- --------- ----------- ----------- Cash paid for acquisition, net of cash acquired.................................. $ 18,200 $ 23,597 $ 85,808 -- --------- --------- ----------- ----------- --------- --------- ----------- -----------
F-29 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 17 - FOREIGN OPERATIONS AND EXPORT REVENUES FOREIGN OPERATIONS The Company operates in one business segment - avionics components manufacturing and integration services. Domestic and foreign operations consist of the following (amounts in thousands):
EIGHT YEAR ENDED DECEMBER MONTHS FOUR MONTHS 31, ENDED ENDED -------------------- AUGUST 31, DECEMBER 1996 1997 1998 31, 1998 --------- --------- ----------- ----------- (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) Revenues Gross revenues United States................................ $ 64,383 $ 109,490 $ 89,619 $ 60,785 Western Europe............................... 10,882 12,240 7,940 4,510 --------- --------- ----------- ----------- Total gross revenues....................... 75,265 121,730 97,559 65,295 --------- --------- ----------- ----------- Less interarea transfers United States................................ (1,496) (2,448) (1,744) (1,350) Western Europe............................... (8,670) (10,379) (5,738) (3,589) --------- --------- ----------- ----------- Total interarea transfers.................. (10,166) (12,827) (7,482) (4,939) --------- --------- ----------- ----------- Net revenues United States................................ 62,887 107,042 87,875 59,435 Western Europe............................... 2,212 1,861 2,202 921 --------- --------- ----------- ----------- Total net revenues......................... $ 65,099 $ 108,903 $ 90,077 $ 60,356 --------- --------- ----------- ----------- --------- --------- ----------- ----------- Consolidated long-lived assets United States.................................. $ 10,573 $ 13,230 $ 24,693 $ 26,455 Western Europe................................. 1,614 824 543 1,705 --------- --------- ----------- ----------- Total consolidated long-lived assets......... $ 12,187 $ 14,054 $ 25,236 $ 28,160 --------- --------- ----------- ----------- --------- --------- ----------- -----------
The Company allocates its revenues on the basis of the location in which the sale originated. Revenues in Western Europe are primarily from Switzerland. Interarea sales are accounted for at prices that the Company believes would be equivalent to unaffiliated customer sales. Interarea transfers and eliminations reflect the shipment of raw component parts between areas. Long-lived assets consists of the Company's property and equipment. Corporate long-lived assets are included with United States assets. EXPORT REVENUES Consolidated revenues include export revenues of $6,484,000, $12,430,000, $11,804,000 and $9,983,000 for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998, respectively. Export revenues are primarily derived from sales to customers located in Western Europe, the Far East and Canada. NOTE 18 - EMPLOYEE BENEFIT PLANS The Company's Swiss subsidiary sponsors a defined contribution pension plan covering substantially all of its employees as required by Swiss law. Contributions and costs, which are shared equally by the F-30 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 18 - EMPLOYEE BENEFIT PLANS (CONTINUED) Company and the employees, are determined as a percentage of each covered employees' salary. Company contributions and costs associated with the plan were $151,000, $157,000, $102,000 and $51,000 for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998, respectively. Substantially all of the Company's domestic employees are eligible to participate in a 401(k) defined contribution plan (the "Plan"). Participation in the Plan is at the discretion of each individual employee who is eligible to participate. Each participating employee is permitted to contribute up to a maximum amount defined in the Plan. The Company and its subsidiaries may make periodic discretionary matching contributions to the Plan. The Company made matching contributions of $41,000, $128,000 and $95,000 during the year ended December 31, 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998, respectively. No matching contributions were made to the plan during the year ended December 31, 1996. The costs associated with administering the plan were not significant for any period presented. F-31 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 - RELATED PARTY TRANSACTIONS The Company's transactions with related parties included in the consolidated financial statements are summarized in the table below (amounts in thousands):
YEAR ENDED FOUR MONTHS DECEMBER 31, EIGHT MONTHS ENDED -------------------- ENDED AUGUST DECEMBER 1996 1997 31, 1998 31, 1998 --------- --------- ------------- ----------- (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) DLJ Transaction financing fees........................ $ -- $ -- $ -- $ 12,000 Credit facility outstanding borrowings............ -- -- -- 4,800 Credit facility interest expense.................. -- -- -- 282 Bridge notes interest expense..................... -- -- -- 1,041 Global Technology Partners, LLC Promissory note receivable........................ -- -- -- 352 Senior Subordinated Lenders Interest and advisory fees Earned during the period........................ 983 358 -- -- Accrued and payable as of year end.............. 43 -- -- -- Purchase of Convertible Notes, Preferred Stock and Redeemable Warrants in conjunction with ADS acquisition..................................... 2,000 -- -- -- Fees and expenses earned.......................... 36 -- -- -- Debt repaid with IPO proceeds Senior subordinated debt........................ -- 7,000 -- -- Convertible Notes............................... -- 1,000 -- -- Investors Purchases of debt and equity securities Preferred Stock and Redeemable Warrants in conjunction with Minority Interest acquisition................................... 6,500 -- -- -- Convertible Notes, Preferred Stock and Redeemable Warrants in conjunction with ADS acquisition................................... 4,000 -- -- -- Fees and expenses earned.......................... 74 -- -- -- Convertible Notes Interest earned during the period............... 86 98 -- -- Interest accrued and payable as of year end..... 86 -- -- -- Repaid with IPO proceeds........................ -- 2,000 -- --
Each related party is described below: DLJ -- The Company and its affiliates incurred fees payable to DLJ related entities of approximately $12.0 million in connection with the DLJ Acquisition. The Bridge Notes issued to finance the DLJ acquisition were also purchased by a DLJ entity. In addition, DLJ is involved in making a market for the Notes and may hold such Notes from time to time. The Company's credit facility is also provided by a syndicate of lenders led by DLJ related entities. F-32 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 19 - RELATED PARTY TRANSACTIONS (CONTINUED) Global Technology Partners, LLC ("GTP") -- Two members of the Company's Board of Directors are also members of GTP. In December 1998, GTP purchased approximately $704,000 of shares of common and preferred stock of Holdings. The Company loaned half of the purchase price for such shares to GTP at an interest rate equal to the interest rate on the longest maturity senior bank debt of the Company in effect from time to time, plus 1.0%. The loans are repayable out of the proceeds from the sale of such stock, are secured by such stock, and are included in other long-term assets. Upon collection of the notes, funds will be advanced to Holdings. Senior Subordinated Lenders - Own 8.9% of the Company's issued and outstanding common stock at December 31, 1997, were represented on the Company's Board of Directors in 1995 and 1996, and provided a portion of the Company's Convertible Notes financing and the Subordinated Debt (Notes 10 and 14). The ownership percentage reflects the cashless exercise and conversion of all Preferred Stock, Preferred Stock warrants, common stock warrants and Redeemable Warrants into 451,370 common shares in conjunction with the Recapitalization (Note 14). Investors - Own 16.4% of the Company's issued and outstanding common stock at December 31, 1997, are represented on the Company's Board of Directors, and provided a portion of the Company's Convertible Notes and Preferred Stock financing (Notes 10 and 14). The ownership percentage reflects the cashless exercise and conversion of all Preferred Stock and Redeemable Warrants into 840,808 common shares in conjunction with the Recapitalization (Note 14). NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) In conjunction with the Notes, Bridge Notes and credit facility described in Note 2, the following summarized condensed consolidating financial information is presented for the Company, segregating guarantor subsidiaries and non-guarantor subsidiaries. The accompanying financial information in the "Guarantor Subsidiaries" column reflects the financial position, results of operations and cash flows for those subsidiaries which guarantee the Notes and credit facility. The guarantor subsidiaries are wholly-owned subsidiaries of the Company and the guarantees are full, unconditional, and joint and several. Separate financial statements of the guarantor subsidiaries are not presented because management believes that such financial statements would not be material to investors. Investments in subsidiaries in the following condensed consolidating financial information are accounted for under the equity method of accounting. Consolidating adjustments include the following: (1) Elimination of investments in subsidiaries. (2) Elimination of intercompany accounts. (3) Elimination of intercompany sales between guarantor and non-guarantor subsidiaries. (4) Elimination of equity in earnings of subsidiaries. F-33 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) BALANCE SHEETS (AMOUNTS IN THOUSANDS)
DECEMBER 31, 1997 (PREDECESSOR) ----------------------------------------------------------------------------------- DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ---------------- ------------ ------------- -------------- ------------ ASSETS Current assets Cash and cash equivalents........ $ 16 $ 109 $ 81 $ -- $ 206 Accounts receivable, net......... -- 17,101 1,051 -- 18,152 Inventories...................... -- 24,399 1,577 -- 25,976 Other current assets............. 98 505 179 -- 782 ------- ------------ ------------- -------------- ------------ Total current assets........... 114 42,114 2,888 -- 45,116 Property and equipment, net........ 290 12,928 836 -- 14,054 Other assets, principally intangibles, net.................. 472 39,257 238 -- 39,967 Investments in subsidiaries........ 20,414 3,378 -- (23,792)(1) -- Intercompany receivables........... 60,946 659 4,357 (65,962)(2) -- ------- ------------ ------------- -------------- ------------ $82,236 $98,336 $ 8,319 $(89,754) $99,137 ------- ------------ ------------- -------------- ------------ ------- ------------ ------------- -------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term obligations........... $ 4 $ 801 $ 621 $ -- $ 1,426 Other current liabilities........ 4,333 12,780 1,805 -- 18,918 ------- ------------ ------------- -------------- ------------ Total current liabilities...... 4,337 13,581 2,426 -- 20,344 ------- ------------ ------------- -------------- ------------ Long-term liabilities Long-term obligations............ 36,027 1,372 13 -- 37,412 Intercompany payable............. 873 64,430 659 (65,962)(2) -- Other long-term liabilities...... 1,333 96 425 -- 1,854 ------- ------------ ------------- -------------- ------------ Total long-term liabilities.... 38,233 65,898 1,097 (65,962) 39,266 ------- ------------ ------------- -------------- ------------ Stockholders' equity Capital.......................... 51,110 12,418 1,194 (13,612)(1) 51,110 Retained earnings (deficit)...... (11,444) 6,439 3,741 (10,180)(1) (11,444) Accumulated comprehensive income (loss)......................... -- -- (139) -- (139) ------- ------------ ------------- -------------- ------------ Total stockholder's equity..... 39,666 18,857 4,796 (23,792) 39,527 ------- ------------ ------------- -------------- ------------ $82,236 $98,336 $ 8,319 $(89,754) $99,137 ------- ------------ ------------- -------------- ------------ ------- ------------ ------------- -------------- ------------
F-34 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 (SUCCESSOR) ------------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ---------------- ------------ ------------- --------------- ------------ ASSETS Current assets Cash and cash equivalents........ $ 2,458 $ 762 $ 298 $ -- $ 3,518 Accounts receivable, net......... -- 28,917 1,524 -- 30,441 Inventories...................... -- 32,624 1,657 -- 34,281 Other current assets............. 7,066 894 237 -- 8,197 -------- ------------ ------------- --------------- ------------ Total current assets........... 9,524 63,197 3,716 -- 76,437 Property and equipment, net........ 272 26,170 1,718 -- 28,160 Other assets, principally intangibles, net.................. 12,105 200,383 13,842 -- 226,330 Investments in subsidiaries........ 239,101 4,373 -- (243,474)(1) -- Intercompany receivables........... 45,710 693 3,567 (49,970)(2) -- -------- ------------ ------------- --------------- ------------ $306,712 $294,816 $22,843 $(293,444) $330,927 -------- ------------ ------------- --------------- ------------ -------- ------------ ------------- --------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term obligations........... $ 892 $ 628 $ 292 $ -- $ 1,812 Other current liabilities........ 10,767 16,651 1,174 -- 28,592 -------- ------------ ------------- --------------- ------------ Total current liabilities...... 11,659 17,279 1,466 -- 30,404 -------- ------------ ------------- --------------- ------------ Long-term liabilities Long-term obligations............ 184,822 131 -- -- 184,953 Intercompany payables............ (3,694) 53,388 276 (49,970)(2) -- Other long-term liabilities...... 16,278 658 713 -- 17,649 -------- ------------ ------------- --------------- ------------ Total long-term liabilities.... 197,406 54,177 989 (49,970) 202,602 -------- ------------ ------------- --------------- ------------ Stockholders' equity Capital.......................... 100,200 214,823 15,440 (230,263)(1) 100,200 Retained earnings (deficit)...... (2,553) 8,537 4,674 (13,211)(1) (2,553) Accumulated comprehensive income (loss)......................... -- -- 274 -- 274 -------- ------------ ------------- --------------- ------------ Total stockholders' equity..... 97,647 223,360 20,388 (243,474) 97,921 -------- ------------ ------------- --------------- ------------ $306,712 $294,816 $22,843 $(293,444) $330,927 -------- ------------ ------------- --------------- ------------ -------- ------------ ------------- --------------- ------------
F-35 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS)
TWELVE MONTHS ENDED DECEMBER 31, 1996 (PREDECESSOR) ----------------------------------------------------------------------------------- DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ---------------- ------------ ------------- -------------- ------------ Revenues........................... $-- $61,835 $11,934 $ (8,670)(3) $65,099 Cost of sales...................... -- 48,542 9,520 (8,670)(3) 49,392 ------- ------------ ------------- -------------- ------------ Gross profit..................... -- 13,293 2,414 -- 15,707 Selling, general and administrative expenses.......................... 2,461 7,240 1,046 -- 10,747 Amortization of intangible assets............................ -- 695 14 -- 709 Interest expense................... 4,032 129 87 -- 4,248 Intercompany charges............... (2,182) 2,002 180 -- -- Equity in earnings of subsidiaries...................... (2,820) (594) -- 3,414(4) -- Other expenses (income)............ (3) 204 (93) -- 108 Provisions for income taxes........ (671) 1,225 158 -- 712 ------- ------------ ------------- -------------- ------------ Net income (loss).................. $ (817) $ 2,392 $ 1,022 $ (3,414) $ (817) ------- ------------ ------------- -------------- ------------ ------- ------------ ------------- -------------- ------------
TWELVE MONTHS ENDED DECEMBER 31, 1997 (PREDECESSOR) ------------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ---------------- ------------ ------------- -------------- ------------- Revenues........................... $-- $106,154 $13,128 $(10,379)(3) $108,903 Cost of sales...................... -- 81,115 9,511 (10,379)(3) 80,247 ------- ------------ ------------- -------------- ------------- Gross profit..................... -- 25,039 3,617 -- 28,656 Selling, general and administrative expenses.......................... 3,646 10,720 1,390 -- 15,756 Amortization of intangible assets............................ -- 892 13 -- 905 Interest expense................... 2,888 220 46 -- 3,154 Intercompany charges............... (4,617) 4,432 185 -- -- Equity in earnings of subsidiaries...................... (6,392) (999) -- 7,391(4) -- Other expenses..................... -- 161 82 -- 243 Provision (benefit) for income taxes............................. (779) 3,678 445 -- 3,344 Extraordinary charge, net of tax... 2,078 -- -- -- 2,078 ------- ------------ ------------- -------------- ------------- Net income......................... $ 3,176 $ 5,935 $ 1,456 $ (7,391) $ 3,176 ------- ------------ ------------- -------------- ------------- ------- ------------ ------------- -------------- -------------
F-36 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) STATEMENTS OF OPERATIONS (CONTINUED)
EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR) ------------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ---------------- ------------ ------------- -------------- ------------- Revenues........................... $-- $87,312 $ 8,503 $(5,738)(3) $90,077 Cost of sales...................... -- 59,252 6,587 (5,738)(3) 60,101 ------- ------------ ------------- ------- ------------- Gross profit..................... -- 28,060 1,916 -- 29,976 Selling, general and administrative expenses.......................... 3,949 11,041 729 -- 15,719 Nonrecurring charges............... 3,632 -- -- -- 3,632 Amortization of intangible assets............................ -- 1,337 10 -- 1,347 Interest expense (income).......... 2,343 7 -- -- 2,350 Intercompany charges............... (4,357) 4,229 128 -- -- Equity in earnings of subsidiaries...................... (6,824) (489) -- 7,313(4) -- Other expenses (income)............ 600 (164) 411 -- 847 Provision (benefit) for income taxes............................. (2,532) 5,275 149 -- 2,892 ------- ------------ ------------- ------- ------------- Net income......................... $ 3,189 $ 6,824 $ 489 $(7,313) $ 3,189 ------- ------------ ------------- ------- ------------- ------- ------------ ------------- ------- -------------
FOUR MONTHS ENDED DECEMBER 31, 1998 (SUCCESSOR) ------------------------------------------------------------------------------------ DECRANE AIRCRAFT GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED HOLDINGS, INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ---------------- ------------ ------------- -------------- ------------- Revenues........................... $-- $58,904 $ 5,041 $(3,589) $60,356 Cost of sales...................... -- 42,691 3,637 (3,589) 42,739 ------- ------------ ------------- ------- ------------- Gross profit....................... -- 16,213 1,404 -- 17,617 Selling, general and administrative expenses.......................... 1,741 8,124 409 -- 10,274 Nonrecurring charges............... -- -- -- -- -- Amortization of intangible assets............................ 102 2,868 178 -- 3,148 Interest expense (income).......... 6,754 92 6 -- 6,852 Intercompany charges............... (3,088) 3,025 63 -- -- Equity in earnings of subsidiaries...................... (7,753) (506) -- 8,259(4) -- Other expenses (income)............ -- 132 203 -- 335 Provision for income taxes (benefit)......................... 2,568 (5,275) 39 -- (2,668) Extraordinary charge, net of tax... 2,229 -- -- -- 2,229 ------- ------------ ------------- ------- ------------- Net income (loss).................. $(2,553) $ 7,753 $ 506 $(8,259) $(2,553) ------- ------------ ------------- ------- ------------- ------- ------------ ------------- ------- -------------
F-37 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
TWELVE MONTHS ENDED DECEMBER 31, 1996 (PREDECESSOR) ------------------------------------------------------------------- DECRANE AIRCRAFT HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------------- ----------- ------------- ----------- ----------- Cash flows from operating activities Net income (loss).............. $ (817) $ 2,392 $ 1,022 $ (3,414) $ (817) Adjustments to net income (loss) Non-cash adjustments to net income (loss).............. 1,093 2,623 903 -- 4,619 Equity in earnings of subsidiaries............... (2,820) (594) -- 3,414(4) -- Changes in working capital... (864) 1,525 (1,505) -- (844) ------------- ----------- ------------- ----------- ----------- Net cash provided by (used for) operating activities............... (3,408) 5,946 420 -- 2,958 ------------- ----------- ------------- ----------- ----------- Cash flows from investing activities Acquisition of companies, net of cash acquired............. (18,200) -- -- -- (18,200) Capital expenditures and other........................ (97) (5,353) (366) -- (5,816) ------------- ----------- ------------- ----------- ----------- Net cash used for investing activities............... (18,297) (5,353) (366) -- (24,016) ------------- ----------- ------------- ----------- ----------- Cash flows from financing activities Net proceeds from sale of equity....................... 8,240 -- -- -- 8,240 Debt financing for acquisitions................. 13,548 -- -- -- 13,548 Principal payments on long-term debt and leases.............. (1,500) (438) (63) -- (2,001) Line of credit borrowings (repayments)................. 1,280 -- (89) -- 1,191 Other, net..................... 158 (85) -- -- 73 ------------- ----------- ------------- ----------- ----------- Net cash provided by (used for) financing activities............... 21,726 (523) (152) -- 21,051 ------------- ----------- ------------- ----------- ----------- Effect of foreign currency translation on cash............ -- -- 22 -- 22 ------------- ----------- ------------- ----------- ----------- Net increase (decrease) in cash and equivalents................ 21 70 (76) -- 15 Cash and equivalents at beginning of period...................... 16 17 272 -- 305 ------------- ----------- ------------- ----------- ----------- Cash and equivalents at end of period......................... $ 37 $ 87 $ 196 $ -- $ 320 ------------- ----------- ------------- ----------- ----------- ------------- ----------- ------------- ----------- -----------
F-38 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
TWELVE MONTHS ENDED DECEMBER 31, 1997 (PREDECESSOR) ------------------------------------------------------------------- DECRANE AIRCRAFT HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------------- ----------- ------------- ----------- ----------- Cash flows from operating activities Net income..................... $ 3,176 $ 5,935 $ 1,456 $ (7,391) $ 3,176 Adjustments to net income Non-cash adjustments to net income..................... 1,307 4,687 829 -- 6,823 Equity in earnings of subsidiaries............... (6,392) (999) -- 7,391(4) -- Changes in working capital... 1,374 (4,530) (2,202) -- (5,358) ------------- ----------- ------------- ----------- ----------- Net cash provided by (used for) operating activities............... (535) 5,093 83 -- 4,641 ------------- ----------- ------------- ----------- ----------- Cash flows from investing activities Acquisition of companies, net of cash acquired............. (23,597) -- -- -- (23,597) Capital expenditures and other........................ (244) (3,823) (145) -- (4,212) ------------- ----------- ------------- ----------- ----------- Net cash used for investing activities............... (23,841) (3,823) (145) -- (27,809) ------------- ----------- ------------- ----------- ----------- Cash flows from financing activities Net proceeds from sale of equity....................... 28,933 -- -- -- 28,933 Net debt repaid with equity offering proceeds............ (29,848) -- -- -- (29,848) Debt financing for acquisitions................. 23,597 -- -- -- 23,597 Principal payments on long-term debt and leases.............. (474) (1,147) (54) -- (1,675) Line of credit borrowings (repayments)................. 1,907 -- (96) -- 1,811 Other, net..................... 240 (101) -- -- 139 ------------- ----------- ------------- ----------- ----------- Net cash provided by (used for) financing activities............... 24,355 (1,248) (150) -- 22,957 ------------- ----------- ------------- ----------- ----------- Effect of foreign currency translation on cash............ -- -- 97 -- 97 ------------- ----------- ------------- ----------- ----------- Net increase (decrease) in cash and equivalents................ (21) 22 (115) -- (114) Cash and equivalents at beginning of period...................... 37 87 196 -- 320 ------------- ----------- ------------- ----------- ----------- Cash and equivalents at end of period......................... $ 16 $ 109 $ 81 $ -- $ 206 ------------- ----------- ------------- ----------- ----------- ------------- ----------- ------------- ----------- -----------
F-39 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED) STATEMENTS OF CASH FLOWS (CONTINUED)
EIGHT MONTHS ENDED AUGUST 31, 1998 (PREDECESSOR) --------------------------------------------------------------------- DECRANE AIRCRAFT HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------------- ----------- --------------- ----------- ----------- Cash flows from operating activities Net income..................... $ 3,189 $ 6,824 $ 489 $ (7,313) $ 3,189 Adjustments to net income Non-cash adjustments to net income..................... (2,222) 3,420 557 -- 1,755 Equity in earnings of subsidiaries............... (6,824) (489) -- 7,313(4) -- Changes in working capital... 5,492 (7,393) (29) -- (1,930) ------------- ----------- ----- ----------- ----------- Net cash provided by (used for) operating activities............... (365) 2,362 1,017 -- 3,014 ------------- ----------- ----- ----------- ----------- Cash flows from investing activities Acquisition of companies, net of cash acquired............. (87,071) 1,263 -- -- (85,808) Capital expenditures and other........................ (44) (1,306) (220) -- (1,570) ------------- ----------- ----- ----------- ----------- Net cash used for investing activities............... (87,115) (43) (220) -- (87,378) ------------- ----------- ----- ----------- ----------- Cash flows from financing activities Net proceeds from sale of equity....................... 34,815 -- -- -- 34,815 Net debt repaid with equity offering proceeds............ (34,815) -- -- -- (34,815) Debt financing for acquisitions................. 85,808 -- -- -- 85,808 Principal payments on long-term debt and leases.............. (3) (1,280) (34) -- (1,317) Line of credit borrowings (repayments)................. 6,007 -- (554) -- 5,453 Other, net..................... 23 (96) -- -- (73) ------------- ----------- ----- ----------- ----------- Net cash provided by (used for) financing activities............... 91,835 (1,376) (588) -- 89,871 ------------- ----------- ----- ----------- ----------- Effect of foreign currency translation on cash............ -- -- 26 -- 26 ------------- ----------- ----- ----------- ----------- Net increase in cash and equivalents.................... 4,355 943 235 -- 5,533 Cash and equivalents at beginning of period...................... 16 109 81 -- 206 ------------- ----------- ----- ----------- ----------- Cash and equivalents at end of period......................... 4,371 $ 1,052 $ 316 $ -- $ 5,739 ------------- ----------- ----- ----------- ----------- ------------- ----------- ----- ----------- -----------
F-40 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 20 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
FOUR MONTHS ENDED DECEMBER 31, 1998 (SUCCESSOR) --------------------------------------------------------------------- DECRANE AIRCRAFT HOLDINGS, GUARANTOR NON-GUARANTOR CONSOLIDATING CONSOLIDATED INC. SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL ------------- ----------- --------------- ----------- ----------- Cash flows from operating activities Net income....................... $ (2,553) $ 7,753 $ 506 $ (8,259) $ (2,553) Adjustments to net income Non-cash adjustments to net income....................... (2,647) 4,964 (274) -- 2,043 Equity in earnings of subsidiaries................. (7,753) (506) -- 8,259(4) -- Changes in working capital..... 12,408 (10,272) (618) -- 1,518 ------------- ----------- ----- ----------- ----------- Net cash provided by (used for) operating activities................. (545) 1,939 (386) -- 1,008 ------------- ----------- ----- ----------- ----------- Cash flows from investing activities Acquisition of companies, net of cash acquired.................. -- -- -- -- -- Capital expenditures and other... -- (1,746) (67) -- (1,813) ------------- ----------- ----- ----------- ----------- Net cash used for investing activities................. -- (1,746) (67) -- (1,813) ------------- ----------- ----- ----------- ----------- Cash flows from financing activities Acquisition of Predecessor, net............................ -- -- -- -- -- Net proceeds from sale of equity......................... -- -- -- -- -- Net debt repaid with equity offering proceeds.............. -- -- -- -- -- Debt financing for acquisitions................... -- -- -- -- -- Principal payments on long-term debt and leases................ (1) (447) (10) -- (458) Line of credit borrowings (repayments)................... (1,367) -- 264 -- (1,103) Other, net....................... -- (36) -- -- (36) ------------- ----------- ----- ----------- ----------- Net cash provided by (used for) financing activities................. (1,368) (483) 254 -- (1,597) ------------- ----------- ----- ----------- ----------- Effect of foreign currency translation on cash.............. -- -- 181 -- 181 ------------- ----------- ----- ----------- ----------- Net increase (decrease) in cash and equivalents...................... (1,913) (290) (18) -- (2,221) Cash and equivalents at beginning of period........................ 4,371 1,052 316 -- 5,739 ------------- ----------- ----- ----------- ----------- Cash and equivalents at end of period........................... $ 2,458 $ 762 $ 298 $ -- $ 3,518 ------------- ----------- ----- ----------- ----------- ------------- ----------- ----- ----------- -----------
NOTE 21 - SUBSEQUENT EVENTS In January 1999, the Company acquired 100% of PATS, Inc.'s stock for a purchase price of $41.5 million (including the assumption of debt) subject to adjustments for changes to its net working capital, and reserves for certain environmental and other indemnities made by the shareholders. PATS is a F-41 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 21 - SUBSEQUENT EVENTS (CONTINUED) Maryland-based designer, manufacturer and installer of aircraft and avionics systems. Among other things, PATS is the principal supplier of auxiliary fuel tank systems to the Boeing Business Jet program. The transaction will be accounted for as a purchase and the difference between the purchase price and the fair value of the net assets acquired will be recorded as goodwill and amortized on a straight-line basis over thirty years. NOTE 22 -- CONDENSED QUARTERLY DATA FOR 1997 AND 1998 (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1998 -------------------------------------------- ------------------------------------------------------------- (SUCCESSOR) (PREDECESSOR) (TWO MONTHS (ONE MONTH ENDED ENDED AUGUST 31, SEPTEMBER 30, 1998) 1998) 1ST 2ND 3RD 4TH 1ST 2ND 3RD 3RD 4TH --------- --------- --------- ----------- --------- --------- ----------- ------------- ----------- Revenues........... $ 26,118 $ 28,130 $ 26,639 $ 28,016 $ 29,128 $ 29,854 $ 31,095 $ 16,012 $ 44,344 Gross profit....... 6,011 7,214 6,998 8,433 8,987 9,720 11,269 4,932 12,685 Income (loss) before extraordinary item.............. 629 1,454 1,481 1,690 1,688 1,672 (171) (480) 156 Extraordinary loss from debt refinancing....... -- (2,078) -- -- -- -- -- (296) (1,933) Net income (loss)............ 629 (624) 1,481 1,690 1,688 1,672 (171) (776) (1,777)
F-42 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Avtech Corporation In our opinion, the accompanying balance sheets and the related statements of income, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Avtech Corporation at September 30, 1996 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Los Angeles, California June 12, 1998 F-43 AVTECH CORPORATION BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, ---------------- 1996 1997 JUNE 25, 1998 ------- ------- ------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents....................... $ 1,052 $ 4,136 $ 1,093 Accounts receivable, net of allowance for doubtful accounts of $20, $20 and $20 at September 30, 1996 and 1997 and June 25, 1998, respectively.................................. 7,398 4,928 5,321 Inventories..................................... 4,233 5,254 5,832 Prepaid expenses and other assets............... 69 183 57 Income taxes refundable......................... -- -- 4,368 Deferred income taxes........................... -- 247 1,613 ------- ------- ------------- Total current assets.......................... 12,752 14,748 18,284 ------- ------- ------------- Property, plant and equipment Land............................................ 431 791 791 Buildings and improvements...................... 2,411 4,685 5,176 Machinery and equipment......................... 2,764 3,005 3,477 Furniture, computer and other equipment......... 3,216 3,426 3,555 ------- ------- ------------- 8,822 11,907 12,999 Less: Accumulated depreciation.................. (6,523) (7,050) (7,380) ------- ------- ------------- 2,299 4,857 5,619 Other assets Patents, net of amortization.................... 5 4 4 Deferred income taxes........................... -- 629 3,239 ------- ------- ------------- Total assets.................................. $15,056 $20,238 $ 27,146 ------- ------- ------------- ------- ------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................ $ 768 $ 1,388 $ 1,396 Accrued expenses................................ 2,120 4,043 1,955 Deferred income taxes........................... 389 -- -- ------- ------- ------------- Total current liabilities..................... 3,277 5,431 3,351 ------- ------- ------------- Long-term liabilities Deferred compensation........................... 1,229 1,385 -- Other........................................... 438 472 472 ------- ------- ------------- 1,667 1,857 472 ------- ------- ------------- Commitments and contingencies (Note 8)............ -- -- -- ------- ------- ------------- Stockholders' equity Common stock, no par value, 1,500,000 shares authorized; 323,541, 318,929 and 468,929 shares outstanding at September 30, 1996 and 1997 and June 25, 1998, respectively.......... 237 232 10,519 Retained earnings............................... 9,875 12,718 12,804 ------- ------- ------------- 10,112 12,950 23,323 ------- ------- ------------- $15,056 $20,238 $ 27,146 ------- ------- ------------- ------- ------- -------------
The accompanying notes are an integral part of these financial statements. F-44 AVTECH CORPORATION STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, -------------------- ------------------------------- JUNE 30, JUNE 25, 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- (UNAUDITED) Sales...................................................... $ 21,020 $ 28,797 $ 32,619 $ 24,071 $ 30,634 Cost of sales.............................................. 12,333 15,967 20,422 14,667 19,643 --------- --------- --------- --------- --------- Gross profit........................................... 8,687 12,830 12,197 9,404 10,991 --------- --------- --------- --------- --------- Operating expenses General and administrative............................... 1,991 1,992 2,758 1,915 2,448 Selling expenses......................................... 1,257 1,559 1,295 880 1,180 Research, development and engineering.................... 2,853 2,697 2,707 2,040 2,013 Employee stock ownership plan............................ 1,200 1,000 1,200 900 600 Nonrecurring bonus and employment contract termination expenses............................................... -- -- -- -- 3,592 --------- --------- --------- --------- --------- 7,301 7,248 7,960 5,735 9,833 --------- --------- --------- --------- --------- Income from operations..................................... 1,386 5,582 4,237 3,669 1,158 --------- --------- --------- --------- --------- Other income (expense) Interest expense......................................... (8) (8) (6) -- -- Gain on disposal of equipment............................ -- 14 -- -- -- Interest income.......................................... 46 30 269 197 169 Rental income, net....................................... -- -- 32 -- 62 Stockholder transaction expenses......................... -- -- -- -- (1,229) --------- --------- --------- --------- --------- 38 36 295 197 (998) --------- --------- --------- --------- --------- Income before provision for federal income tax............. 1,424 5,618 4,532 3,866 160 Provision for federal income tax........................... 493 1,934 1,518 1,352 74 --------- --------- --------- --------- --------- Net income................................................. $ 931 $ 3,684 $ 3,014 $ 2,514 $ 86 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-45 AVTECH CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
STATED NUMBER OF VALUE OF SHARES COMMON RETAINED OUTSTANDING STOCK EARNINGS ----------- --------- --------- Balance at September 30, 1994.................................................. 323,541 $ 237 $ 5,260 Net income..................................................................... -- -- 931 ----------- --------- --------- Balance at September 30, 1995.................................................. 323,541 237 6,191 Net income..................................................................... -- -- 3,684 ----------- --------- --------- Balance at September 30, 1996.................................................. 323,541 237 9,875 Stock redemption............................................................... (4,612) (5) (171) Net income..................................................................... -- -- 3,014 ----------- --------- --------- Balance at September 30, 1997.................................................. 318,929 232 12,718 Exercise of stock options (Unaudited).......................................... 150,000 2,683 -- Tax benefit of stock options exercised (Unaudited)............................. -- 7,604 -- Net income (Unaudited)......................................................... -- -- 86 ----------- --------- --------- Balance at June 25, 1998 (Unaudited)........................................... 468,929 $ 10,519 $ 12,804 ----------- --------- --------- ----------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-46 AVTECH CORPORATION STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, -------------------- ------------------------------- JUNE 30, JUNE 25, 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- (UNAUDITED) Cash flows from operating activities Net income................................................ $ 931 $ 3,684 $ 3,014 $ 2,514 $ 86 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization........................... 587 582 528 363 405 Gain on sale of property and equipment.................. -- (14) -- -- -- Deferred income tax provision........................... 54 947 (1,265) (1,150) 334 Changes in assets and liabilities: Accounts receivable................................... (1,797) (2,990) 2,470 2,899 (393) Inventories........................................... (1,504) 198 (1,021) (1,216) (578) Prepaid and other current assets...................... 63 (20) (114) (86) 126 Accounts payable...................................... 400 (152) 620 678 8 Accrued expenses...................................... 1,620 (872) 2,153 1,209 (2,977) --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities.................................. 354 1,363 6,385 5,211 (2,989) --------- --------- --------- --------- --------- Cash flows from investing activities Purchases of property and equipment....................... (735) (509) (3,085) (370) (1,167) Proceeds from sale of assets.............................. -- 15 -- -- -- --------- --------- --------- --------- --------- Net cash used in investing activities................... (735) (494) (3,085) (370) (1,167) --------- --------- --------- --------- --------- Cash flows from financing activities Exercise of stock options................................. -- -- -- -- 1,143 Stock redemption.......................................... -- -- (176) (176) -- Capital lease obligations................................. (36) (36) (40) (27) (30) --------- --------- --------- --------- --------- Net cash used in financing activities.................................. (36) (36) (216) (203) 1,113 --------- --------- --------- --------- --------- Net (decrease) increase in cash and equivalents............................................... (417) 833 3,084 4,638 (3,043) Cash and equivalents at beginning of the period............................................. 636 219 1,052 1,052 4,136 --------- --------- --------- --------- --------- Cash and equivalents at end of the period................................................ $ 219 $ 1,052 $ 4,136 $ 5,690 $ 1,093 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-47 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE COMPANY Avtech Corporation (the "Company") is a custom design and manufacturing firm established in 1963 to produce high-quality equipment for the aircraft industry. In 1970, the Company began to produce engineered products and has since focused its engineering and product development efforts on responding to specifications from original equipment aircraft manufacturers (OEMs). The Company's products fall into five main categories: 1. Aircraft communication control equipment (including audio control units, multiplexed audio systems and audio amplifiers). 2. Aircraft lighting controls (including ballasts, dimmers and flood lighting). 3. Power systems (including transformer rectifier units, power inverters and battery chargers). 4. Airborne facsimile terminals (AvFax). 5. Special products (including PDX intercoms, liquid-gauging and fill control, and frequency units). FINANCIAL STATEMENT PRESENTATION The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At September 30, 1996 and 1997, the Company maintained $549,000 and $119,000, respectively, of its cash and cash equivalents balances at one bank. At September 30, 1996 and 1997, the Company maintained $503,000 and $4,017,000, respectively, in a money market funds and bankers' acceptances. RECEIVABLES AND CONCENTRATIONS OF CREDIT RISK Accounts receivable from trade customers are generally due within thirty days. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral. All of the Company's sales are to businesses directly associated with the aviation industry (airlines, aircraft manufacturers, etc.). Approximately 70% of the Company's sales are to customers based in the United States. F-48 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT The cost of property, plant and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed using the straight-line and accelerated methods over the following estimated lives:
YEARS --------- Buildings............................................................................. 20-39 Building improvements................................................................. 10-39 Machinery and equipment............................................................... 5 Furniture, computer and other equipment............................................... 5-7
Maintenance and repairs are charged to operations when incurred. Additions and improvements are capitalized. When property, plant and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. INVENTORIES Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Costs of manufactured inventories include all direct materials, labor and an allocation of overhead. Market represents the lower of replacement cost or estimated net realizable value. REVENUE RECOGNITION Revenues from the sale of manufactured products are recorded when shipped. Reimbursements for nonrecurring engineering costs, which are expensed as incurred, are included in revenues at the time a negotiated settlement is reached with the customer. The Company's nonrecurring engineering revenues for the years ended September 30, 1995, 1996 and 1997 were $1,257,000, $4,042,000 and $527,000, respectively. Included within accounts receivable at September 30, 1996 are $3,384,000 of unbilled receivables which were collected in fiscal year 1997. INCOME TAXES Deferred income taxes are determined using the liability method. A deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in the asset and/or liability for deferred taxes. STOCK OPTION PLAN As permitted under Statement of Financial Accounting Standards No., 123, "Accounting for Stock-Based Compensation" (SFAS 123), the Company measures compensation expense related to the employee stock option plan utilizing the intrinsic value method as prescribed by Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees". F-49 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCRUED WARRANTIES The Company sells a majority of its products to customers along with various repair or replacement warranties. The terms of the warranties vary according to the customer and/or the product involved. The most common warranty period is the earlier of: a. 36 months from the date of delivery to the operator, or b. 42 months from the date of manufacture. Provisions for estimated future warranty costs are made in the period corresponding to the sale of the product. Classification between short and long-term warranty obligations is estimated based on historical trends. UNAUDITED INTERIM RESULTS The financial information as of June 25, 1998 and for the nine months ended June 30, 1997 and June 25, 1998 is unaudited. In the opinion of the Company, the unaudited financial information is presented on a basis consistent with the audited financial statements and contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim period. The results of operations for the interim periods are not necessarily indicative of results of operations for the full year. NOTE 2 - INVENTORIES Inventories at September 30, 1996 and 1997 and June 25, 1998 (unaudited) consist of the following (amounts in thousands):
SEPTEMBER 30, -------------------- JUNE 25, 1996 1997 1998 --------- --------- ----------- (UNAUDITED) Raw materials and components..................................... $ 2,488 $ 2,617 $ 3,218 Work in process.................................................. 1,285 2,014 1,912 Finished goods................................................... 460 623 702 --------- --------- ----------- $ 4,233 $ 5,254 $ 5,832 --------- --------- ----------- --------- --------- -----------
NOTE 3 - PROPERTY AND EQUIPMENT The Company owns property located immediately adjacent to its main facility. The property is not currently used for any rental or productive activity. In 1990, the property was condemned by the local authorities and is considered unsuitable for habitation in its current state. The current carrying value of $62,000 represents the original cost of the land and is lower than its estimated net realizable value. In 1997, the Company purchased a 20,275 square foot office building and an adjacent vacant lot for investment purposes. The net book value of the property was $2,134,000 at September 30, 1997. The Company leases the office space to tenants under one to three-year noncancelable operating leases. At F-50 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - PROPERTY AND EQUIPMENT (CONTINUED) March 31, 1998, the building was fully occupied. Minimum future rentals to be received on noncancelable leases are as follows (amounts in thousands):
YEAR ENDING SEPTEMBER 30, - ------------------------------------------------------------------ 1998.............................................................. $ 128 1999.............................................................. $ 20
The Company leases equipment under a five-year lease term. Based on the provisions of Statement No. 13, issued by the Financial Accounting Standards Board, these leases meet the criteria of capital leases and, accordingly, have been recorded as such. These assets are stated on the balance sheet at their capitalized cost of $194,000. Depreciation of $161,000 has been recognized through September 30, 1997. NOTE 4 - ACCRUED EXPENSES Accrued expenses at September 30, 1996 and 1997 consist of the following (amounts in thousands):
SEPTEMBER 30, -------------------- 1996 1997 --------- --------- Employee compensation and related taxes........................................................ $ 875 $ 2,556 Employee stock option plan contribution........................................................ 1,000 1,200 Current portion of warranty reserve............................................................ 204 240 Other.......................................................................................... 41 47 --------- --------- $ 2,120 $ 4,043 --------- --------- --------- ---------
NOTE 5 - DEFINED CONTRIBUTION PLANS The Company sponsors an employee stock ownership plan (ESOP) for the benefit of employees with twelve or more months of continuous service. Contributions are made to the plan at the discretion of the Company's Board of Directors. The Company's contributions for the years ended September 30, 1995, 1996 and 1997 were $1,200,000, $1,000,000 and $1,200,000, respectively. The Company also sponsors a cash or deferred compensation (401k) plan for the benefit of eligible employees. Under the plan, employees may elect to defer a portion of their compensation (subject to statutory limitations). Discretionary contributions by the Company may be made when authorized by the Board of Directors. No such contributions were made during the years ended September 30, 1995, 1996 and 1997. NOTE 6 - FEDERAL INCOME TAXES The provision (benefit) for federal income taxes is comprised of the following (amounts in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------- 1995 1996 1997 --------- --------- --------- Current................................................................................ $ 439 $ 987 $ 2,783 Deferred............................................................................... 54 947 (1,265) --------- --------- --------- $ 493 $ 1,934 $ 1,518 --------- --------- --------- --------- --------- ---------
F-51 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 6 - FEDERAL INCOME TAXES (CONTINUED) The provision for federal income tax expense approximates the federal statutory rate for all periods presented. The Company is not required to pay state income taxes. Deferred tax assets and liabilities at September 30, 1996 and 1997 include the following (amounts in thousands):
SEPTEMBER 30, -------------------- 1996 1997 --------- --------- DEFERRED TAX ASSETS Reserves........................................................................................ $ 335 $ 393 Compensatory stock options...................................................................... 416 471 Capitalized inventories......................................................................... 10 12 --------- --------- 761 876 DEFERRED TAX LIABILITIES Deferred revenue................................................................................ (1,150) -- --------- --------- $ (389) $ 876 --------- --------- --------- ---------
The classification in the balance sheet between current and noncurrent deferred tax assets is based on the classification of the related asset that gives rise to the temporary difference. A deferred tax asset that is not related to an asset is classified according to the expected reversal date of the temporary difference. NOTE 7 - COMMITMENTS AND CONTINGENCIES PURCHASE COMMITMENTS The Company has commitments based on open purchase orders arising out of its normal business operations. As of September 30, 1996 and 1997, these commitments were $5,080,000 and $6,760,000, respectively. TERMINATION FOR CONVENIENCE CLAUSES The Company routinely enters into contractual commitments with customers to design and manufacture parts. These contracts contain "termination for convenience" clauses that permit recovery of costs incurred by the Company if the customer terminates the contract prior to its completion. These recoveries are included in sales when billed. F-52 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED) LEASING ARRANGEMENTS The Company leases a building under a five-year operating lease. The lease calls for monthly payments of $5,000 plus utilities, taxes and maintenance and expires in April 2001. The lessor has the right to terminate the lease at anytime by giving the Company at least twelve months written notice. The Company subleases a portion of its facilities under an operating lease that expires December 1998. The following is net rental expense under operating leases for the years ended September 30, 1995, 1996 and 1997 (amounts in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------- 1995 1996 1997 --------- --------- --------- Rent expense.............................................................................. $ 60 $ 60 $ 60 Less: Sublease rentals.................................................................... (7) (11) (10) --- --- --- $ 53 $ 49 $ 50 --- --- --- --- --- ---
The following is a schedule by years of the future minimum rentals under this lease (amounts in thousands):
YEAR ENDING SEPTEMBER 30, LESSEE SUBLEASE NET - ------------------------------------------------------------------- ----------- ----------- --------- 1998........................................................... $ 60 $ 10 $ 50 1999........................................................... 60 11 49 2000........................................................... 60 11 49 2001........................................................... 60 11 49 ----- --- --------- $ 240 $ 43 $ 197 ----- --- --------- ----- --- ---------
NOTE 8 - ECONOMIC DEPENDENCE A material part of the Company's business is dependent on one customer, the loss of which could have a material effect on the Company. For the years ended September 30, 1995, 1996 and 1997, approximately 29.5%, 24% and 46.9%, respectively, of revenues were attributable to this customer. At September 30, 1996 and 1997, accounts receivable from this customer represented approximately 41.1% and 23.4%, respectively, of total accounts receivable. NOTE 9 - STOCK OPTION PLANS Prior to 1993, the Company implemented a nonqualified compensatory stock option plan with the President. Under this Plan, options to purchase 90,000 shares of the Company's stock were granted at an option price of $2.70 per share. These options are currently exercisable by the President. During the year ended September 30, 1994, the Company and three key employees entered into employment contracts which voided all prior compensatory stock option plans other than that of the President's. Under these new contracts, the Company granted 20,000 shares to each of the three employees at an exercise price of $15 per share. Fair market value was $28 per share at the date of the grant. Each employee still employed at September 30, 1998, is entitled to exercise his option to purchase 20,000 fully F-53 AVTECH CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - STOCK OPTION PLANS (CONTINUED) vested shares. Accordingly, the Company has expensed $156,000 during each of the years ended September 30, 1995, 1996 and 1997. These shares, when exercised, cannot be sold until September 30, 2003. The Company has the first right to purchase the shares upon exercise but is not obligated to do so. The accumulated expense resulting from the difference between the exercise prices and fair market values at the respective date of grant has been classified as a long-term liability in deferred compensation. NOTE 10 - ADDITIONAL CASH FLOW INFORMATION Supplementary cash flow information for the years ended September 30, 1995, 1996 and 1997 is as follows (amounts in thousands):
YEAR ENDED SEPTEMBER 30, ------------------------------ 1995 1996 1997 ------ ------ ------ Cash paid during the period for: Capital leases.................................. $ 36 $ 36 $ 40 ------ ------ ------ ------ ------ ------ Interest........................................ $ 10 $ 7 $ 5 ------ ------ ------ ------ ------ ------ Income taxes.................................... $-- $1,449 $2,900 ------ ------ ------ ------ ------ ------
NOTE 11 - SUBSEQUENT EVENT (UNAUDITED) In May 1998, the Company signed a definitive purchase agreement whereby all of the outstanding shares of the Company would be acquired by DeCrane Aircraft Holdings, Inc. The transaction was consummated on June 26, 1998. Prior to closing the transaction, all outstanding stock options were exercised and the income tax benefit resulting from the tax deduction allowed for the difference between the exercise price and the fair market value of the stock was recorded. The $7,604,000 income tax benefit from the stock options exercised is a noncash transaction for purposes of the statement of cash flows for the nine months ended June 25, 1998. Additionally, certain members of management were paid a one-time bonus at closing and the balance due pursuant to their employment contracts that were terminated immediately prior to closing. F-54 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of PATS, Inc. In our opinion, the accompanying consolidated balance sheets and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of PATS, Inc. and subsidiaries at June 30, 1997 and 1998 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Los Angeles, California January 25, 1999 F-55 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS. ------------------------ TABLE OF CONTENTS
PAGE ---- Summary................................................................... 2 Where You Can Get More Information........................................ 5 Summary Pro Forma Consolidated Financial Data............................. 10 Risk Factors.............................................................. 15 Recent Developments....................................................... 23 Use of Proceeds........................................................... 24 Capitalization............................................................ 25 Unaudited Pro Forma Consolidated Financial Data........................... 26 Selected Consolidated Financial Data...................................... 34 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 37 Business.................................................................. 44 Management................................................................ 60 Certain Relationships and Transactions.................................... 68 Description of Bank Credit Facility....................................... 71 Description of Notes...................................................... 73 The Initial Offering...................................................... 108 The Exchange Offer........................................................ 108 Certain Federal Income Tax Consequences................................... 114 Plan of Distribution...................................................... 115 Legal Matters............................................................. 115 Experts................................................................... 115 Index to Financial Statements............................................. F-1
SHARES DeCrane Aircraft Holdings, Inc. OFFER TO EXCHANGE 12% SERIES A SENIOR SUBORDINATED NOTES DUE 2008 FOR 12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED --------------------- PROSPECTUS --------------------- , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [ALTERNATE COVER FOR MARKET-MAKING PROSPECTUS] PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH , 1999 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. [LOGO] DECRANE AIRCRAFT HOLDINGS, INC. 12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 We issued the notes in exchange for our old 12% Series A Senior Subordinated Notes due 2008. The notes are identical to the old notes, except that certain transfer restrictions and registration rights relating to the old notes do not apply to the new notes. Interest on the notes is payable on March 30 and September 30 of each year, beginning March 30, 1999. We have the right to redeem any new notes at any time beginning September 30, 2003 at the redemption prices set forth on page [ ], plus accrued interest. In addition, before September 30, 2001, we may redeem up to 35% of the notes at a redemption price of 112% of their principal amount, plus interest, using proceeds from certain sales of our stock; PROVIDED that at least 65% of the principal amount of notes ever issued under the indenture remains outstanding immediately after such redemption. We will also have the right to redeem, and you will have the right to require us to purchase, the notes upon the occurrence of certain change of control events, at the prices set forth on page [ ]. The notes rank junior to our senior indebtedness and secured debt, including the debt owed under our bank credit facility. The notes rank equally with any future unsecured, senior subordinated debt. The notes are unconditionally guaranteed on a senior subordinated basis by all of our existing wholly-owned domestic subsidiaries, and rank junior to such grantors' senior and unsecured debt and equally with their future unsecured, senior debt. The notes will effectively rank junior to all liabilities of our subsidiaries that are not guarantors. As of September 30, 1998, on a pro forma basis, DeCrane Aircraft and its guarantor subsidiaries would have outstanding approximately $89.8 million of senior indebtedness, and the non-guarantor subsidiaries would have had approximately $1.9 million of outstanding liabilities, including trade payables. INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE [ ]. This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") in connection with offers and sales in market-making transactions at negotiated prices related to prevailing market prices. We do not intend to list the notes on any securities exchange. DLJSC has advised us that it intends to make a market in the notes; however, it is not obligated to do so and may stop at any time. We will not receive the proceeds of the sale of the notes but will bear the expenses of registration. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. DONALDSON, LUFKIN & JENRETTE The date of this Prospectus is , 1999 [ALTERNATE RISK FACTOR FOR MARKET-MAKING PROSPECTUS] TRADING MARKET FOR THE NOTES There is no existing trading market for the notes. We cannot assure you that any market for the notes will develop, or about your ability to sell the notes or the price at which you may be able to sell them. If such a market were to develop, the notes could trade at prices that may be higher or lower than their initial offering price. That trading price could depend on many factors, including prevailing interest rates, our operating results and the market for similar securities. We have also been advised by DLJSC that, subject to applicable laws and regulations, DLJSC currently intends to make a market in the new notes following completion of the exchange offer. However, DLJSC is not obligated to do so and it may discontinue or interrupt any such market-making at any time without notice. DLJSC may be deemed to be our "affiliate" (as defined in the Securities Act) and, as such, may be required to deliver a prospectus in connection with its market-making activities in the notes. Pursuant to the registration rights agreement we signed with DLJSC in connection with the initial offering of the old notes, we have agreed to use our best efforts to file and maintain a registration statement that would allow DLJSC to engage in market-making transactions in the notes for up to 90 days from the date on which we consummate the offer to exchange the notes for the old notes. We have agreed to bear substantially all the costs and expenses related to that registration. [ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS] USE OF PROCEEDS This Prospectus is delivered in connection with the sale of the notes by DLJSC in market-making transactions. We will not receive any of the proceeds from such transactions. [ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS] PLAN OF DISTRIBUTION This Prospectus is to be used by DLJSC in connection with offers and sales of the new notes in market-making transactions effected from time to time. DLJSC may act as a principal or agent for one party when acting as principal or as agent for both parties, and may receive compensation in the form of discounts and commissions, including from both parties when it acts as agent for both. Those sales will be made at prevailing market prices at the time of sale, at prices related thereto or at negotiated prices. DLJ Merchant Banking Partners II, L.P. ("DLJMB") and certain of its affiliates beneficially own approximately 94% of the common stock of DeCrane Holdings. Thompson Dean, Susan C. Schnabel and Timothy J. White, each of whom is a principal of DLJMB, are members of the Board of Directors of DeCrane Holdings and the issuer of the notes, DeCrane Aircraft. DLJ Capital Funding, Inc. acted as syndication agent in connection with our bank credit facility, for which it received certain customary fees and expenses. DLJ Bridge Finance Inc. purchased the bridge notes which were refinanced by the initial offering of old notes, for which it received customary fees and expenses. DLJSC acted as dealer/ manager in connection with the tender offer in the DLJ acquisition, as arranger in connection with the bank credit facility, and as the initial purchaser of the old notes, and is the financial advisor to DeCrane Holdings and DeCrane Aircraft. See "Recent Developments--The DLJ Acquisition." DLJMB, DLJ Capital Funding, Inc. and DLJ Bridge Finance, Inc. are affiliates of DLJSC. DLJSC has informed us that it does not intend to confirm sales of the new notes to any accounts over which it exercises discretionary authority without the prior specific written approval of such transactions by the customer. We have also been advised by DLJSC that, subject to applicable laws and regulations, DLJSC currently intends to make a market in the new notes following completion of the exchange offer. However, DLJSC is not obligated to do so and it may discontinue or interrupt any such market-making at any time without notice. Any such market-making activity also will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, as amended. We cannot assure you that any market for the notes will develop, or about your ability to sell their new notes or the price at which you may be able to sell them. See "Risk Factors--Trading market for the notes." DLJSC has, from time to time, provided investment banking and other financial advisory services to us, for which it has received customary compensation, and will provide such services and financial advisory services to us in the future. DLJSC was the initial purchaser in the initial offering of the old notes and received an underwriting discount of approximately $3.3 million in connection therewith. See "Certain Relationships and Related Transactions." We have entered into a Registration Rights Agreement with DLJSC regarding the use by DLJSC of this Prospectus. Pursuant to such agreement, we have agreed to bear all registration expenses incurred under that agreement, and to indemnify DLJSC against certain liabilities, including liabilities under the Securities Act. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT BEGINNING OF COST AND CHARGED TO END OF CLASSIFICATION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD - ------------------------------------------- ------------ ----------- -------------- ----------- ----------- PREDECESSOR YEAR ENDED DECEMBER 31, 1996 Allowance for doubtful accounts............ $ 259 $ 68 $ 71(A) $ 19 $ 379 Reserve for excess, slow moving and potentially obsolete material............ $ 1,154 $ 1,055 -- $ 116 $ 2,093 YEAR ENDED DECEMBER 31, 1997 Allowance for doubtful accounts............ $ 379 $ 111 $ 174(B) $ 177 $ 487 Reserve for excess, slow moving and potentially obsolete material............ $ 2,093 $ 1,374 $ 59(B) $ 162 $ 3,364 EIGHT MONTHS ENDED AUGUST 31, 1998 Allowance for doubtful accounts............ $ 487 $ 384 $ 32(B) $ 376 $ 527 Reserve for excess, slow moving and potentially obsolete material............ $ 3,364 $ 760 $ 2,056(B) $ 311 $ 5,869 SUCCESSOR FOUR MONTHS ENDED DECEMBER 31, 1998 Allowance for doubtful accounts............ $ 527(B) $ 243 -- $ 189 $ 581 Reserve for excess, slow moving and potentially obsolete material............ $ 5,869(B) $ 285 -- $ 452 $ 5,702
- -------------------------- (A) Comprised of the following: Effect of foreign currency translation $ (4) Recovery of amounts previously written off 20 Attributable to companies acquired 55 --------- $ 71 --------- --------- (B) Attributable to companies acquired. Reflects historical amounts used to determine the fair values of net assets acquired.
S-1 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE - --------- ----------------------------------------------------------------------------------------------- --------- 3.1.1 [reserved] 3.1.2 [reserved] 3.2.1 Certificate of Incorporation of DeCrane Aircraft Holdings, Inc. 3.2.2 Bylaws of DeCrane Aircraft Holdings, Inc. (successor by merger to DeCrane Acquisition Co.) 3.3.1 Certificate of Incorporation of Aerospace Display Systems, Inc. (formerly ADS Acquisition Inc.) 3.3.2 Bylaws of Aerospace Display Systems, Inc., 3.4.1 Articles of Incorporation of Audio International, Inc. 3.4.2 Amended & Restated Bylaws of Audio International, Inc. 3.5.1 Articles of Incorporation of Avtech Corporation 3.5.2 Bylaws of Avtech Corporation 3.6.1 Articles of Incorporation of Cory Components, Inc. 3.6.2 Bylaws of Cory Components, Inc. 3.7.1 Certificate of Incorporation of Dettmers Industries, Inc. (formerly DAHX Acquisition, Inc.) 3.7.2 Bylaws of Dettmers Industries, Inc. 3.8.1 Restated Articles of Incorporation of Elsinore Aerospace Services, Inc. 3.8.2 Bylaws of Elsinore Aerospace Services Inc. 3.9.1 Certificate of Incorporation of Elsinore Engineering, Inc. (formerly EE Acquisition, Inc.) 3.9.2 Bylaws of Elsinore Engineering, Inc. (formerly EE Acquisition, Inc.) 3.10.1 Articles of Incorporation of Hollingsead International, Inc. 3.10.2 Bylaws of Hollingsead International Inc. 3.11.1 Articles of Incorporation of Tri-Star Electronics International, Inc. 3.11.2 Bylaws of Tri-Star Electronics International, Inc. 3.12.1 Articles of Incorporation of PATS, Inc. 3.12.2 Bylaws of PATS, Inc. 3.12.3 Amendment to Articles of PATS, Inc. 3.12.4 Amendment to Bylaws of PATS, Inc. 3.13.1 Articles of Incorporation of Flight Refueling, Inc. 3.13.2 Bylaws of Flight Refueling, Inc. 3.14.1 Articles of Incorporation of Patrick Aircraft Tank Systems, Inc. 3.14.2 Bylaws of Patrick Aircraft Tank Systems, Inc. 3.15.1 Articles of Incorporation of PATS Aircraft and Engineering Corporation 3.15.2 Bylaws of PATS Aircraft and Engineering Corporation 3.16.1 Articles of Incorporation of PATS Support, Inc. 3.16.2 Bylaws of PATS Support, Inc. 4.1 Indenture dated October 5, 1998 between DeCrane Aircraft and State Street Bank & Trust Company 4.1.1 Supplemental Indenture dated January 22, 1999 among PATS, Inc. and its subsidiaries, the other guarantors under the Indenture, and State Street Bank & Trust Company
EXHIBIT NUMBER DESCRIPTION PAGE - --------- ----------------------------------------------------------------------------------------------- --------- 4.2 A/B Exchange Registration Rights Agreement among DeCrane Aircraft Holdings, Inc., the subsidiary guarantors, and DLJSC 4.3 [reserved] 4.4 [reserved] 4.5 Form of DeCrane 12% Senior Notes due 2008 5.1 Opinion of Spolin & Silverman (re legality)* 10.1 [reserved] 10.2 Amended and Restated Investors' Agreement dated as of October 2, 1998 10.3 [reserved] 10.4 [reserved] 10.5 Tax Sharing Agreement dated March 15, 1993 between DeCrane Aircraft and several subsidiaries and Hollingsead International 10.6 Employment Agreement dated July 17, 1998 between the Company and R. Jack DeCrane 10.7 401(k) Salary Reduction Non-Standardized Adoption Agreement dated April 30, 1992 between the Company and The Lincoln National Life Insurance Company 10.8 Form of Subscription Agreement for DeCrane Holdings Co. common and preferred stock by certain members of Global Technology Partners LLC 10.9 [reserved] 10.10 Credit Agreement dated August 28, 1998 by and among DeCrane Aircraft Holdings, Inc. (successor by merger to DeCrane Finance Co.) and DLJ Capital Funding, Inc. 10.10.1 First Amendment to Credit Agreement dated January 22, 1999 10.11 Lease between Botzler-Emery Associates Guilford Ten Limited Partnership and PATS, Inc. 10.12 Lease among Continental Development Corporation, Tri-Star Electronics International, Inc., and Cory Components, Inc. for real property in El Segundo, CA 10.13 Lease among Kilroy Realty, L.P., Kilroy Realty Corporation and Hollingsead International for real property in Garden Grove, California 10.14 Lease between Sussex County, MD and PATS, Inc. 10.15 General Terms Agreement dated July 5, 1995 between the Boeing Company and Cory Components, Number 6-5752-0002 10.15.1 Special Business Provisions dated November 30, 1995 between the Boeing Company and Cory Components, Number 6-5752-0004 10.15.2 Purchase Agreement 9423JC4548 between Boeing Defense & Space- Irving Co. and Cory Components, January 1, 1995 through December 31, 1999 10.16 Purchase Agreement dated as of October 1, 1998 between Matsushita Electronic Industrial Co., Ltd. and Cory Components Inc. 10.17 1998 General Terms Agreement between the Boeing Company and Tri-Star Electronics International, Inc. dated July 1, 1998, number BCA-6-5632-0032
EXHIBIT NUMBER DESCRIPTION PAGE - --------- ----------------------------------------------------------------------------------------------- --------- 10.17.1 Special business provisions between the Boeing Company and Tri-Star Electronics International, Inc. dated July 1, 1998, number STD-6-5632-0097 10.18 General Terms Agreement between Boeing Company and PATS, Inc. dated February 17, 1998 10.18.1 Special business provisions between the Boeing Company and PATS, Inc. dated February 17, 1998 10.18.2 Letter Agreement dated January 15, 1999 between The Boeing Company and DeCrane Aircraft Holdings, Inc. 12.1 DeCrane Aircraft Holdings, Inc. Earnings to Fixed Charges Ratio 12.2 [reserved] 21.1 List of Subsidiaries of Registrant 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of Spolin & Silverman LLP (included in Exhibit 5.1)* 24.1 Power of Attorney 27 Financial Data Schedule 99.1 Form of Letter of Transmittal to Exchange Agent 99.2 Form of Notice of Guaranteed Delivery 99.3 Statement of Eligibility and Qualification of State Street Bank & Trust Company, as trustee, under the Indenture listed as Exhibit 4.1, on Form T-1.*
- ------------------------ * To be filed by Amendment. EX-3.2-1 2 EXHIBIT 3.2.1 Exhibit 3.2.1 CERTIFICATE OF INCORPORATION OF DAHX, INC. FIRST: The name of the corporation (the "Corporation") shall be DAHX, Inc. SECOND: The address of the Corporation's registered office in the State of Delaware is 15 East North Street, Dover, Delaware 19901, County of Kent. The name of its registered agent at such address is Paracorp, Incorporated. THIRD: The nature of the business or the purpose to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The aggregate number of shares of all classes of which the Corporation shall have authority to issue is as follows: (i) 35,000,000 shares of Common Stock, with par value of $0.01 per share (the "Common Shares"); (ii) 167,702 shares of Series A Convertible Preferred Stock, with par value of $0.01 per share (the "Series A Preferred Shares"), 1,646,316 shares of Series B Convertible Preferred Stock, with par value of $0.01 per share (the "Series B Preferred Shares"), 3,000,000 shares of Series C Convertible Preferred Stock, with par value of $0.01 per share (the "Series C Preferred Shares"), 2,000,000 shares of Series D Convertible Preferred Stock, with par value of $0.01 per share (the "Series D Preferred Shares"), and 1,500,000 shares of Series E Convertible Preferred Stock, with par value of $0.01 per share (the "Series E Preferred Stock," and, collectively, with all of the shares described in this clause (h), the "Convertible Preferred Shares"); PROVIDED, HOWEVER, that the number of authorized Convertible Preferred Shares of each series shall be reduced by the number of such Convertible Preferred Shares converted to Common Shares from time to time or otherwise acquired by the Corporation, and the Corporation shall not be authorized to issue Convertible Preferred Shares in replacement of or substitution for any such converted or acquired Convertible Preferred Shares; and (iii) 10,000,000 shares of Preferred Stock, with par value of $0.01 per share (the "Undesignated Preferred Shares" and together with the Convertible Preferred Shares, the "Preferred Shares"). The Undesignated Preferred Shares may be issued in one or more series. The Board of Directors is hereby authorized pursuant to the General Corporation Law of Delaware to fix or alter from time to time the designations, powers, preferences and rights and the qualifications, limitations or restrictions of the shares of each such series of Undesignated Preferred Stock, and to establish from time to time the number of shares constituting any such series or any of them; and to increase or decrease the number of shares of any series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased to accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. FIFTH: The following is a statement of the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of the Convertible Preferred Shares: 1. Except to the extent prohibited by law and subject to the restrictions contained in that certain Credit Agreement dated November 2, 1994 among DeCrane Aircraft Holdings, Inc., an Ohio corporation ("DAH Ohio"), Internationale Nederlanden (U.S.) Capital Corporation, a Delaware corporation ("ING"), certain affiliates of DAH, Ohio and certain other parties, as such agreement may be amended from time to time (the "Credit Agreement"), which will be adopted by the Corporation following the merger of DAH Ohio with and into the Corporation, and in that certain Securities Purchase Agreement dated November 2, 1994 among DAH Ohio, Electra Investment Trust P.L.C., a corporation organized under the laws of the United Kingdom ("EIT"), and Electra Associates, Inc., a Delaware corporation ("Electra Associates" and collectively, with EIT "Electra"), and certain affiliates of DAH Ohio, as such agreement may be amended from time to time (the "Purchase Agreement"), which will be adopted by the Corporation following the merger of DAH Ohio with and into the Corporation, the holders of Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares shall be entitled to receive, pari passu, when, as and if declared by the Board of Directors of the Corporation, cash dividends out of funds legally available for such purpose. Cash dividends at the annual rate of $.10 per Series A Preferred Shares, $.1263 per Series B Preferred Share, $.15 per Series C Preferred Share, $.325 per Series D. Preferred Share and $.40 per Series E Preferred Share, whether or not they are declared, shall cumulate from July 1, 1993 for the Series A Preferred Shares and Series B Preferred Shares, from July 1, 1994 for the Series C Preferred Shares, from February 15, 1996 for the Series D Preferred Shares and from September 18, 1996 for the Series E Preferred Shares, and, except to the extent prohibited by law and subject to the restrictions contained in the Credit Agreement and the Purchase Agreement, such dividends shall be payable quarterly, commencing July 1, 1993 for the Series A Preferred Shares and the Series B Preferred Shares commencing July 1, 1994 for the Series C Preferred Shares, commencing February 15, 1996 for the Series D Shares and commencing September 18, 1996 for the Series E Shares. In the event that on or prior to May 5, 1997, the Corporation shall consummate an underwritten public offering of Common Shares at a price to the public of at least $4.50 per share (as adjusted for splits, stock dividends, combinations and other events) with gross proceeds to the Corporation (before deduction of underwriting discounts) of at least $10,000,000.00, all accrued dividends on the Convertible Preferred Stock for the period ending on the date of consummation of such offering shall be cancelled and eliminated. In no event, so long as any Convertible Preferred Shares shall be outstanding, shall any dividend whatsoever be declared or paid - 2 - upon, nor shall any distribution made upon any Common Shares, whether in cash or other property (excluding, however, dividends or distributions payable solely in Common Shares) unless a dividend is paid or a distribution is made simultaneously to holders of Convertible Preferred Shares immediately prior to the record date for such dividend or distribution on the Common Shares. 2. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary: (a) The holders of the Series D Preferred Shares and the Series E Preferred Shares, before any distribution or payment is made upon any Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares and Common Shares shall be entitled to be paid, pari passu, an amount equal to (1) first, $3.25 per Series D Preferred Share and $4.00 per Series E Preferred Share and (11) then an amount equal to any dividends thereon declared but unpaid, and the holders of Series D Preferred Shares and Series E Preferred Shares shall not be entitled to any further payment, such amounts being sometimes referred to as the "Senior Liquidation Payments." If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Series D Preferred Shares and Series E Preferred Shares shall be insufficient to permit payment to such holders of the Senior Liquidation Payments, then the entire assets of the Corporation to be so distributed shall be distributed among each such series of Convertible Preferred Shares and among the holders thereof (r) first, until all payments referred to in clause (i) above have been made, pari passu, to the holders of the Series D Preferred Shares and Series E Preferred Shares is the proportions set forth in clause (l) above, and (y) then, to the extent that assets remain, to the payments referred to in clause (ll) above pro rata to all holders of such series of Preferred Shares in relative proportion to the amounts of accrued and unpaid dividends with respect to each such Convertible Preferred Share. Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of Series D Preferred Shares and Series E Preferred Shares shall have been paid in full the amounts to which they shall be entitled, the remaining net assets of the Corporation may be distributed to the holders of the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares in the manner set forth in subparagraph 2(b). (b) The holders of the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, before any distribution or payment is made upon any Common Shares, shall be entitled to be paid, pari passu, an amount equal to (i) first, $1.00 per Series A Preferred Share, $1.263 per Series B Preferred Share and $1.50 per Series C Preferred Share, and (11) then an amount equal to any dividends thereon declared but unpaid, and the holders of Series A Preferred Shares. Series B Preferred Shares and Series C Preferred Shares shall not be entitled to any further payment, such amounts being sometimes referred to as the "Senior Subordinated Liquidation Payments." If upon such liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of - 3 - Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares after the Senior Liquidation Payments have been distributed shall be insufficient to permit payments to such holders of the Senior Subordinated Liquidation Payments, then the entire assets of the Corporation to be so distributed shall be distributed ratably among each such series of Convertible Preferred Shares and among the holders thereof (x) first, until all payments referred to in clause (i) above have been made, pari passu, to the holders of the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, in the proportion set forth in clause (i) above, and (y) then, to the extent that assets remain, to the payments referred to in clause (ii) above, pro rata to all holders of such series of Convertible Preferred Shares in relative proportion to the amounts of accrued and unpaid dividends with respect to each such Convertible Preferred Share. (c) Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of Series D Preferred Shares and Series E Preferred Shares, and the holders of Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares shall have been paid in full the amounts to which they shall be entitled, the remaining net assets of the Corporation may be distributed to the holders of Common Shares. (d) Written notice of such liquidation, dissolution or winding up, stating a payment date, the amount of the Senior Liquidation Payments and Senior Subordinated Liquidation Payments as the case may be, and the place where said Senior Liquidation Payments and Senior Subordinated Liquidation Payments, as the case may be, shall be payable, shall be given by mail, postage prepaid, not less than 30 days prior to the payment date stated therein, to the holders of record of Series D Preferred Shares and Series E Preferred Shares and to the holders of record of Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, as the case may be, such notice to be addressed to each such holder at his post office address as shown by the records of the Corporation. (e) For purposes of this paragraph 2 of Article FIFTH only, the sale or transfer by the Corporation of all or substantially all its assets shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of the provisions of this paragraph 2. Such a sale or transfer by the Corporation shall not be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of any other Article of this Certificate of Incorporation. 3A. Subject to the terms and conditions of this paragraph 3, each holder of Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares shall have the right, at its option at any time, to convert any such Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares (except that upon any liquidation of the Corporation the right of conversion shall terminate at the close of business on the last full business day next preceding the date fixed for payment -4- of the amount distributable on the Series D Preferred Shares, the Series E Preferred Shares, and the Series A Preferred Shares, the Series B Preferred Shares and Series C Preferred Shares) into such number of fully paid and nonassessable whole Common Shares as is obtained by, (i) in the case of conversion of Series A Preferred Shares, multiplying the number of Series A Preferred Shares so to be converted by $1.00 and dividing the result by the conversion price of $1.00 per share or by the applicable conversion price as last adjusted and in effect at the date any share or shares of such series of Series A Preferred Shares are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the "Series A Conversion Price"), (ii) in the case of conversion of Series B Preferred Shares, multiplying the number of Series B Preferred Shares so to be converted by $1.263 and dividing the result by the conversion price of $1,263 per share or by the applicable conversion price as last adjusted and in effect at the date any share or shares of such series of Series B Preferred Shares are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the "Series B Conversion Price"), (iii) in the case of conversion of Series C Preferred Shares, multiplying the number of Series C Preferred Shares so to be converted by $1.50 and dividing the result by the conversion price of $1.50 per share or by the applicable conversion price as last adjusted and in effect at the date any share or shares of such series of Series C Preferred Shares are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the "Series C Conversion Price"), (iv) in the case of conversion of Series D Preferred Shares, multiplying the number of Series D Preferred Shares so to be converted by $3.25 and dividing the result by the conversion price of $3.25 per share or by the applicable conversion price as last adjusted and in effect at the date any share or shares of such series of Series D Preferred Shares are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the "Series D Conversion Price"), and, (v) in the case of conversion of Series E, Preferred Shares, multiplying the number of Series E Preferred Shares so to be converted by $4.00 and dividing the result by the conversion price of $4.00 per share or by the applicable conversion price as last adjusted and in effect at the date any share or shares of such series of Series E Preferred Shares are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the "Series E Conversion Price") and together with the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price and the Series D Conversion Price, as the "Conversion Prices"). Such rights of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of Convertible Preferred Shares into Common Shares and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder or holders of Convertible Preferred Shares at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address) in which the certificate or certificates for shares of Common Shares shall be issued. 3B. Promptly after the receipt of the written notice referred to in subparagraph 3A and surrender of the certificate or certificates for the Convertible -5- Preferred Shares to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct a certificate or certificates for the number of whole Common Shares issuable upon the conversion of such Convertible Preferred Shares. To the extent permitted by law, such conversion shall be deemed to have been effected and any one or more of the Conversion Prices, as required, shall be determined as of the close of business on which such written notice shall have been received by the Corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such Convertible Preferred Shares shall cease, and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 3C. No fractional shares shall be issued upon conversion of the Convertible Preferred Shares into Common Shares and no payment or adjustment shall be made upon any conversion on account of any cash dividends on the Common Shares issued upon such conversion. Except to the extent prohibited by law and subject to the restrictions contained in the Credit Agreement and the Purchase Agreement, at the time of each conversion, the Corporation shall pay in cash an amount equal to all dividends accrued and unpaid on the shares surrendered for conversion to the date upon which such conversion is deemed to take place as provided in subparagraph 3B. In case the number of Convertible Preferred Shares represented by the certificate or certificates surrendered pursuant to subparagraph 3A exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder thereof, at the expense of the Corporation, a new certificate or certificates for the number of Convertible Preferred Shares represented by the certificate or certificates surrendered which are not to be converted. If any fractional interest in a Common Share would, except for the provisions of the first sentence of this subparagraph 3C, be deliverable upon any such conversion, the Corporation, in lieu of delivering the fractional share thereof, shall pay to the holder surrendering the Convertible Preferred Shares for conversion an amount in cash equal to the current market price of such fractional interest as determined in good faith by the Board of Directors of the Corporation. 3D. Except (x) as provided in subparagraph 3F hereof or (y) in the event of a dividend or distribution payable in equity securities of the Corporation, if and whether the Corporation shall issue or sell, or is, in accordance with subparagraphs 3D(1) through 3D(5), deemed to have issued or sold, any of its Common Shares or securities convertible into or exercisable for Common Shares, for a consideration per share (on a fully-diluted Common Share basis) less than any one or more of the Conversion Prices in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, each such Conversion Price which exceeds such per share consideration shall be reduced to the price (calculated to the nearest cent) equal to the product determined by multiplying the Conversion Price in effect immediately prior thereto by a fraction, of which the numerator shall be (i)(A) the total number of Common Shares outstanding immediately prior to the time of such issue or sale, plus (B) the number of -6- additional Common Shares which the aggregate offering price of the total number of Common Shares so issued or sold would purchase at the Conversion Price in effect immediately prior to such issuance or sale, and (ii) of which the denominator shall be (A) the total number of Common Shares outstanding immediately prior to such issuance or sale, plus (B) the number of Common Shares so issued or sold. For purposes of the foregoing sentence, the total number of Common Shares outstanding shall be deemed to include the number of Common Shares which would be outstanding if all outstanding securities exercisable for or convertible into Common Shares (except options (other than warrants (to purchase Common Shares) were so exercised or converted, and all securities exercisable for or convertible into Common Shares (except options (other than warrants (to purchase Common Shares) were so exercised or converted, as applicable, and then converted or exercised, as applicable. For purposes of this subparagraph 3D, the following subparagraphs 3D(1) to 3D(5), shall also be applicable: 3D(1). In case at any time the Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Shares or any stock or securities convertible into or exchangeable for Common Shares (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Shares are issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of Common Shares issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than any one or more of the conversion Prices in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Shares issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph 3D(3), no adjustment of any of the Conversion Prices shall be made upon the actual issue of such Common Shares or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Shares upon conversion or exchange of such Convertible Securities. 3D(2). In case the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, -7- whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Shares are issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of Common Shares issuable upon the conversion or exchange of all such Convertible Securities) shall be less than any one or more of the Conversion Prices in effect immediately prior to the time of such issue or sale, then the total maximum number of Common Shares issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (a) except as otherwise provided in subparagraph 3D(3) below, no adjustment of any of the Conversion Prices shall be made upon the actual issue of such Common Shares upon conversion or exchange of such Convertible Securities, and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of any one or more of the Conversion Prices have been or are to be made pursuant to other provisions of this subparagraph 3D, no further adjustment of any such Conversion Price shall be made by reason of such issue or sale. 3D(3). Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph 3D(1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in subparagraph 3D(1) or 3D(2), or the rate at which any Convertible Securities referred to in subparagraph 3D(1) or 3D(2) are convertible into or exchangeable for Common Shares shall change at any time (other than under or by reason of provisions designed to protect against dilution), each of the Conversion Prices in effect at the time of such event shall forthwith be readjusted to such Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Conversion Securities, each of the Conversion Prices then in effect hereunder shall, as required, forthwith be increased to the respective such Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Shares issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such Option referred to in subparagraph 3D(1) or the rate at which any Convertible Securities referred to in subparagraph 3D(1) or 3D(2) are convertible into or exchangeable for Common Shares shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then, in case of the delivery of Common Shares upon the exercise of any such Option, or upon conversion or exchange of any such Convertible Securities, each of the -8- Conversion Prices then in effect hereunder shall forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Securities never been issued as to such Common Shares and had adjustments been made upon the issuance of the Common Shares delivered as aforesaid, but only if as a result of such adjustment any such Conversion Price then in effect hereunder is hereby reduced. 3D(4). In case any Common Shares, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions paid or allowed by the Corporation in connection therewith. In case any Common Shares, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair market value of such consideration as determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. The amount of consideration deemed to be received by the Corporation pursuant to the foregoing provisions of this subparagraph 3D(4) upon any issuance and/or sale of Common Shares, Options or Convertible Securities pursuant to an established compensation plan of the Corporation, to directors, officers or employees of the Corporation in connection with their employment shall be increased by the amount of any tax benefit realized by the Corporation as a result of such issuance and/or sale, the amount of such tax benefit being the amount by which the federal and/or state income or other tax liability of the Corporation shall be reduced by reason of any deduction or credit in respect of such issuance and/or sale. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, the consideration deemed to have been received by the Corporation for such Options shall be an amount (i) agreed to by the Corporation, the holders of a majority of the Convertible Preferred Shares then outstanding and the holders of a majority of the Common Shares then outstanding or, (ii) in the absence of such agreement, by an independent firm of investment bankers, appraisers or accountants selected by the Corporation (and approved by the holders of a majority of the Common Shares then outstanding and the holders of a majority of the Convertible Preferred Shares then outstanding) or, (iii) in the absence of agreement as to the identity of such independent firm, by three independent firms of investment bankers, appraisers or accountants, (A) one of which shall be selected by the Corporation (and approved by the holders of a majority of the Common Shares then outstanding), (B) one by the holders of a majority of the Convertible Preferred Shares then outstanding and (C) the third selected by the investment bankers, appraisers or accountants selected by the Corporation and such holders of a majority of the outstanding Convertible Preferred Shares pursuant to parts (A) and (B) of this clause (iii), or (iv) in such other manner as may be agreed between the Corporation and the holders of a majority of the Convertible Preferred Shares outstanding (and approved by the holders of a majority of the Common Shares then outstanding). The Corporation -9- shall bear the costs associated with compensating the investment bankers, appraisers and accountants described in the preceding sentence if the determination of the value of the consideration deemed to have been received by the Corporation for the Options is made pursuant to clause (ii) of the preceding sentence, but if such determination is made pursuant to clause (iii) of the preceding sentence, (x) the Corporation shall bear the costs associated with compensating the investment bankers, appraisers or accountants appointed pursuant to part (A) of such clause (iii), (y) the holders of the then outstanding Convertible Preferred Shares (pro rata in proportion to the number of Convertible Preferred Shares held by each such holder) shall bear the costs associated with compensating the investment bankers, appraisers or accountants appointed pursuant to part (B) of such clause (iii), and (z) the Corporation shall bear one-half of the costs associated with compensating the investment bankers, appraisers and accountants appointed pursuant to part (C) of such clause (iii), and the holders of the then outstanding Convertible Preferred Shares (pro rata in proportion to the number of Preferred Shares held by each such holder) shall bear the remaining one-half of such costs. For purposes of the foregoing provisions of this subparagraph 3D(4), (i) holders of Common Shares outstanding shall be deemed to include the holders of securities (except Convertible Preferred Shares, securities exchangeable for or exercisable into Convertible Preferred Shares, and options (other than warrants) to purchase Common Shares) Convertible into or exercisable for Common Shares ("Common Convertible Securities"), (ii) the number of Common Shares deemed to be held by the holders referred to in the immediately preceding clause (i) shall be deemed to be equal to the number of Common Shares into which such Common Convertible Securities could then be converted or for which such Common Convertible Securities could then be exercised, (iii) the holders of Convertible Preferred Shares outstanding shall be deemed to include the holders of securities Convertible into or exercisable for Convertible Preferred Shares ("Preferred Convertible Securities"), and (iv) the number of Convertible Preferred Shares deemed to be held by the holders referred to in the immediately preceding clause (iii) shall be deemed to be equal to the number of Convertible Preferred Shares into which such Convertible Preferred Convertible Securities could then be converted or for which such Preferred Convertible Securities could then be exercised. 3D(5). The number of Common Shares outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Shares for the purposes of this subparagraph 3D. 3E. In case the Corporation shall at any time subdivide its outstanding Common Shares into a greater number of shares or make a dividend or distribution payable in Common Shares, the Conversion Prices in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding Common Shares of the Corporation shall be combined into a smaller number of shares, the Conversion Prices in effect immediately prior to such combination shall be proportionately increased. -10- 3F. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of any of the Conversion Prices in the case of the issuance of: (i) up to an aggregate of 867,000 Common Shares, or options to purchase the same, pursuant to stock options or purchase plans adopted by the Corporation; (ii) up to an aggregate of 205,000 Common Shares, or options to purchase the same, for key employees of businesses acquired by the Corporation; (iii) the Common Shares or Preferred Shares upon exercise of any presently outstanding warrant (or any Common Shares upon conversion of Preferred Shares issued upon exercise of any presently outstanding warrant), not including the warrants referred to in subparagraph (iv) of this Section 3F, Common Shares upon conversion of presently outstanding Preferred Shares; (iv) warrants for Common Shares, and the Common Shares issued upon exercise of such warrants, to ING, Electra, Nassau Capital Partners L.P. and NAS Partners I, L.L.C.; (v) up to an aggregate of 41,000 Common Shares, or options to purchase the same, to directors of the Corporation; or (vi) up to an aggregate of 820,000 Common Shares, or options to purchase the same, in connection with any merger or acquisition to which the Corporation or any subsidiary is a party. 3G. If any capital reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Shares shall be entitled to receive shares, securities or assets with respect to or in exchange for Common Shares, then, as a condition of such reorganization or reclassification, lawful and adequate provisions (in form satisfactory to the holders of at least 66-2/3% of the outstanding Convertible Preferred Shares voting together as a class) shall be made whereby each holder of Convertible Preferred Shares shall thereafter have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the Common Shares of the Corporation immediately theretofore receivable upon the conversion of Convertible Preferred Shares, such shares, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding Common Shares equal to the number of such shares immediately theretofore so receivable upon such conversion, and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Conversion Prices) shall thereafter be applicable, as nearly as may be in relation to any shares, securities or assets thereafter deliverable upon the exercise of such conversion rights (including, as required, an -11- immediate adjustment, by reason of such reorganization or reclassification, of any one or more, of the Conversion Prices to the value for the Common Shares reflected by the terms of such reorganization or reclassification if the value so reflected is less than any Conversion Price in effect immediately prior to such reorganization or reclassification). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of Common Shares of the surviving corporation are issuable to holders of Common Shares of the Corporation outstanding immediately prior to such merger or consolidation, each of the Conversion Prices in effect immediately prior to such merger or consolidation shall, as required, be adjusted in the same manner as though there were subdivision or combination of the outstanding Common Shares of the Corporation. The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (other than the Corporation) resulting from such consolidation or merger or if the corporation purchasing such assets shall assume by written instrument (in form reasonably satisfactory to the holders of at least 66-2/3% of the Convertible Preferred Shares at the time outstanding voting together as a class) executed and mailed or delivered to each holder of Convertible Preferred Shares at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. 3H. Upon any adjustment of any one or more of the Conversion Prices, then and in each such case the Corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each holder of Convertible Preferred Shares at the address of such holder as shown on the books of the Corporation, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3I. In case at any time: (1) the Corporation shall declare any dividend upon its Common Shares payable in cash or shares or make any other distribution to the holder of its Common Shares; (2) the Corporation shall offer for subscription PRO RATA to the holders of its Common Shares any additional shares of any class or other rights; (3) there shall be any capital reorganization or reclassification or merger of the Corporation with, or a sale of all or substantially all of its assets to, another corporation; or (4) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; -12- then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, addressed to each holder of any Convertible Preferred Shares at the address of such holder as shown on the books of the Corporation, at least 20 days' prior written notice of the date (a) on which the books of the Corporation shall close or a record shall be taken for the purpose of determining the holders entitled to receive such dividend, distribution or subscription rights or (b) for determining rights to vote in respect of any reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Shares shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Shares shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. 3J. The Corporation will at all times reserve and keep available out of its authorized Common Shares or its treasury shares, solely for the purpose of issuance upon conversion of Convertible Preferred Shares as herein provided, such number of Common Shares as shall then be issuable upon the conversion of all outstanding Convertible Preferred Shares (including shares issuable in respect of any cumulated but unpaid dividends on the convertible Preferred Shares). The Corporation covenants that all Common Shares which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens and charges with respect to the issue thereof. The Corporation will not take any action which results in any adjustment of any of the Conversion Prices if the total number of Common Shares issued and issuable after such action upon conversion of the Convertible Preferred Shares would exceed the total number of Common Shares then authorized by this Certificate of Incorporation. 3K. The issuance of certificates for shares of Common Shares upon conversion of the Convertible Preferred Shares shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Convertible Preferred Shares which is being converted. 3L. The Corporation will at no time close its transfer books against the transfer of any Convertible Preferred Shares or any shares of Common Shares issued or issuable upon the conversion of any shares of Convertible Preferred Shares in any manner which interfere with the timely conversion of such Convertible Preferred Shares. 3M. The adjustments to the Conversion Prices which are referred to above in this paragraph 3 shall be effective as to all Convertible Preferred Shares, whether or not such Convertible Preferred Shares are issued and outstanding at the time of occurrence of the events which trigger the adjustment in the Conversion Prices. - 13 - 3. Except as otherwise provided by law and this Certificate of Incorporation, the holders of Common Shares and Convertible Preferred Shares shall vote together as a class (together with holders of Convertible Preferred Shares or any other series entitled to vote) on all matters to be voted on by the shareholders of the Corporation on the basis that each holder of Convertible Preferred Shares shall be entitled to vote for each share of Common Shares which would be issuable to such holder upon the conversion of all the Convertible Preferred Shares so held on the record date for the determination of shareholders entitled to vote. 4. Subject to the provisions contained in that certain Fourth Amended and Restated Shareholders Agreement dated as of September 18, 1996 among DAH Ohio and the other parties named therein, as it may be amended from time to time, which will be adopted by the Corporation, at any time when shares of Convertible Preferred Shares are outstanding, except where the vote of the holders of a greater number of shares of the Corporation is required by law or by the Certificate of Incorporation and in addition to any other vote required by law. 5A. The Corporation will not create or authorize the creation of any additional class of shares unless the same ranks junior to the Series D Preferred Shares and the Series E Preferred Shares as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or increase the authorized amount of the Series D Preferred Shares or the Series E Preferred Shares or increase the authorized amount of any additional class of shares of stock unless the same ranks junior to the Series D Preferred Shares and the Series E Preferred Shares as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or create or authorize any obligation or security convertible into Series D Preferred Shares or Series E Preferred Shares or into shares of any other class of shares unless the same ranks junior to the Series D Preferred Shares and the Series E Preferred Shares as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, whether any such creation of authorization or increase shall be by means of amendment of this Certificate of Incorporation or by merger, consolidation or otherwise, without the prior consent of the holders of a majority of the outstanding Series D Preferred Shares, voting as a class, and the holders of a majority of the outstanding Series E Preferred Shares, voting as a class, given in person or by proxy at an annual or special meeting called for that purpose, at which meeting the holders of the shares of Series D Preferred Shares, Series E Preferred Shares shall vote together as a separate class. 5B. The Corporation will not create or authorize the creation of any additional class of shares unless the same ranks junior to the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, or increase the authorized amount of the Series A Preferred Shares, Series B Preferred Shares or Series C Preferred Shares or increase the authorized amount of any additional class of shares of stock unless the same ranks junior to the Series A Preferred Shares, Series B Preferred - 14 - Shares and Series C Preferred Shares as to the distribution of assets of the liquidation, dissolution or winding up of the Corporation, or create or authorize any obligation or security convertible into Series A Preferred Shares, Series B Preferred Shares, Series C Preferred Shares or into any other class of shares unless the same ranks junior to the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares as to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, whether any such creation or authorization or increase shall be by means of amendment of the Certificate of Incorporation or by merger, consolidation or otherwise, without the prior consent of the holders of a majority of the outstanding Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, voting as a class, given in person or proxy, at an annual or special meeting called for that purpose, at which meeting the holders of the shares of Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares shall vote together as a separate class. 5C. The Corporation will not merge or consolidate with or into any other corporation or sell (except in the ordinary course of business) assets representing more than 10% of the Corporation's total assets, excluding inventory, without the prior consent of the holders of a majority of the outstanding Convertible Preferred Shares voting as a class, given in person or by proxy, at a special meeting called for that purpose, at which meeting the holders of Convertible Preferred Shares shall vote together as a separate class; provided, however, that notwithstanding any provision of this paragraph 5C, to the contrary, the provisions of this paragraph 5C shall not apply with respect to the exercise (i) by ING, of its rights under any of the Security Documents (as defined in the Credit Agreement, as it may be amended from time to time), or (ii) by Electra of its rights under the Purchase Agreement or any of the Related Agreements (as defined in the Purchase Agreement). 5D. The Corporation will not amend, alter or repeal its Certificate of Incorporation or By-Laws in any manner so as to adversely affect the respective relative rights and preferences of the Convertible Preferred Shares or the holders thereof, without the prior consent of the holders of a majority of the outstanding shares of the Series of Convertible Preferred Shares whose rights or preferences would be adversely affected thereby, given in person or by proxy, at an annual or special meeting called for that purpose, at which meeting the holders of the shares of the Series of Convertible Preferred Shares whose rights or preferences would be adversely affected thereby voting together as a separate class. 5. All cross-references in each subdivision of this Article FIFTH shall refer to other subdivisions of this Article FIFTH. - 15 - SIXTH: The following is a statement of the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of the Common Shares: 1. The holders of Common Shares shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the Corporation subject to the provisions of subdivision 1 of Article FIFTH with respect to the rights of holders of the Convertible Preferred Shares. 2. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment shall have been made to holders of the Convertible Preferred Shares of the full amounts to which they shall respectively be entitled as stated and expressed herein or as may be stated and expressed pursuant thereto, the holders of Common Shares shall be entitled to the exclusion of the holders of the Convertible Preferred Shares to share ratably according to the number of Common Shares held by them in all remaining assets of the Corporation available for distribution to its stockholders. 3. All of the Common Shares shall be identical with each other in every respect. Each Common Share shall entitled the holder thereof to one vote for each share upon all matters upon which shareholders have the right to vote. The Corporation may issue from time to time warrants to acquire Common Shares which permit the holders thereof to vote together with the holders of Common Shares a number of votes equal to the number of shares of Common Shares which may be acquired upon exercise of such warrants. SEVENTH: The name and mailing address of the incorporator is as follows: NAME MAILING ADDRESS Linda Criblez 2121 Avenue of the Stars 18th Floor Los Angeles, CA 90067 EIGHTH: 1. The directors of the Corporation shall have no personal liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of a director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which a director derived any improper personal benefit. If the General Corporation Law of Delaware is so amended after the filing of this Certificate of Incorporation to further eliminate or limit the personal liability of directors, then the personal liability of the directors shall be - 16 - eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware as so amended. 2. The Corporation shall indemnify, to accordance with and to the fullest extent now or hereafter permitted by law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal administrative or investigative, including without limitation, an action by or in the right of the Corporation, by reason of his acting as a director or executive officer (within the meaning of Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as amended) of the Corporation (and the Corporation, in the discretion of the Board of Directors, may so indemnify a person by reason of the fact that he is or was an other officer, employee or agent of the Corporation or is or was serving at the request of the Corporation in any other capacity for or on behalf of the Corporation) against any liability or expense actually and reasonably incurred by each person in respect thereof; provided, however, the Corporation shall be required to indemnify an officer or director in connection with an action, suit or proceeding if such action, suit or proceeding was authorized by the Board of Directors of the Corporation. Such indemnification is not exclusive of any other right to indemnification provided by law or otherwise. The right to indemnification conferred by this Section 2 shall be deemed to be a contract between the Corporation and each person referred to herein. 3. No amendment to or repeal of those provisions shall apply to or have any effect on the liability or alleged liability of any person for or with respect to any acts or omissions of such person occurring prior to such amendments. NINTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make adopt, alter, amend or repeal the By-laws of the Corporation. Subject to any provisions in the By-laws providing indemnification to officers and directors of the Corporation, the By-laws of the Corporation may be altered or amended or new By-laws adopted by the affirmative vote of the holders of at least 66 1/3% of the outstanding shares of capital stock of the Corporation (including any warrants with voting rights) entitled to vote (voting together as a single class). TENTH: [Deleted by the Agreement and Plan of Merger dated as of June 17, 1998 between the Corporation and DeCrane Acquisition Co.] - 17 - ELEVENTH: The affirmative vote of at least 66-2/3% of the outstanding shares of capital stock of the Corporation entitled to vote (including any warrants with voting rights) shall be required to amend or repeal any provision of Articles EIGHTH, NINTH, TENTH and ELEVENTH hereof or to adopt any provision inconsistent therewith. TWELFTH: The Corporation reserves the rights to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. -18- I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a Corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand as of January 8, 1997. /s/ Linda Criblez ------------------------------- Linda Criblez -19- EX-3.2-2 3 EXHIBIT 3.2.2 EXHIBIT A BYLAWS OF DELIGHT ACQUISITION CO. ******* ARTICLE 1 OFFICES SECTION 1.01. REGISTERED OFFICE. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 1.02. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. SECTION 1.03. BOOKS. The books of the Corporation may kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 MEETINGS OF STOCKHOLDERS SECTION 2.01. TIME AND PLACE OF MEETINGS. All meetings of stockholders shall be held at such place, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). SECTION 2.02. ANNUAL MEETINGS. Annual meetings of stockholders, commencing with the year 1998, shall be held to elect the Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 2.03. SPECIAL MEETINGS. Special meetings of stockholders may be called by the Board of Directors or the chairman of the Board and shall be called by the Secretary at the request in writing of holders of record of a majority of the outstanding capital stock of the Corporation entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. SECTION 2.04. NOTICE OF MEETINGS AND ADJOURNED MEETINGS; WAIVER OF NOTICE. (a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended ("DELAWARE LAW"), such notice shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Unless these bylaws otherwise require, when a meeting is adjourned to another time and place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. (b) A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 2.05. QUORUM. Unless otherwise provided under the certificate of incorporation or these bylaws and subject to Delaware Law, the presence, in person or by proxy, of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. SECTION 2.06. VOTING (a) Unless otherwise provided in the certificate of incorporation and subject to Delaware Law, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Unless otherwise provided in Delaware Law, the certificate of 2 incorporation or these bylaws, the affirmative vote of a majority of the shares of capital stock of the Corporation present, in person or by proxy, at a meeting of stockholders and entitled to vote on the subject matter shall be the act of the stockholders. (b) Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. SECTION 2.07. ACTION BY CONSENT. (a) Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein, unless, within 60 days of the earliest dated consent delivered in the manner required by this Section and Delaware Law to the Corporation, written consents signed by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. SECTION 2.08. ORGANIZATION. At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, (or in his absence or if one shall not have been elected, the President) shall act as chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the chairman 3 of the meeting shall appoint secretary of the meeting shall act as secretary of the meeting and keep the minutes thereof. SECTION 2.09. ORDER OF BUSINESS. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting. ARTICLE 3 DIRECTORS SECTION 3.01. GENERAL POWERS. Except as otherwise provided in Delaware Law or the certificate of incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. SECTION 3.02. NUMBER, ELECTION AND TERM OF OFFICE. The number of directors which shall constitute the whole Board shall be fixed from time to time by resolution of the Board of Directors but shall not be less than two nor more than nine. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.12 herein, and each director so elected shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. Directors need not be stockholders. SECTION 3.03 QUORUM AND MANNER OF ACTING. Unless the certificate of incorporation or these bylaws require a greater number, a majority of the total number of directors shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the directors present at meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 3.04. TIME AND PLACE OF MEETINGS. The Board of Directors shall hold its meeting at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors). 4 SECTION 3.05. ANNUAL MEETING. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereon given as hereinafter provided in Section 3.07 hereof or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice. SECTION 3.06. REGULAR MEETINGS. After the place and time of regular meetings of the Board of Directors shall have been determined and notice thereof shall have been once given to each member of the Board of Directors, regular meetings may be held without further notice being given. SECTION 3.07. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President and shall be called by the Chairman of the Board, President or Secretary on the written request of three directors. Notice of special meetings of the Board of Directors shall be given to each director at least three days before the date of the meeting in such manner as is determined by the Board of Directors. SECTION 3.08. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the bylaws of the Corporation; and unless the resolution of the Board of Directors or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 5 SECTION 3.09. ACTION BY CONSENT. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.10. TELEPHONIC MEETINGS. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 3.11. RESIGNATION. Any director may resign at any time by giving written notice to the Board of Directors or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3.12. VACANCIES. Unless otherwise provided in the certificate of incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. Each director so chosen shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the certificate of incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in the filling of other vacancies. 6 SECTION 3.13. REMOVAL. Any director or the entire Board of Directors may be removed, with or without cause, at any time by the affirmative vote of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote and the vacancies thus created may be filled in accordance with Section 3.12 herein. SECTION 3.14. COMPENSATION. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses. ARTICLE 4 OFFICERS SECTION 4.01. PRINCIPAL OFFICERS. The principal officers of the Corporation shall be a President, one or more Vice Presidents, a Treasurer and a Secretary who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. The Corporation may also have such other principal officers, including one or more Controllers, as the Board may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of President and Secretary. SECTION 4.02. ELECTION, TERM OF OFFICE AND REMUNERATION. The principal officers of the Corporation shall be elected annually by the Board of Directors at the annual meeting thereof. Each such officer shall hold office until his successor is elected and qualified, or until his earlier death, resignation or removal. The remuneration of all officers of the Corporation shall be fixed by the Board of Directors. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine. SECTION 4.03. SUBORDINATE OFFICERS. In addition to the principal officers enumerated in Section 4.01 hereof, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees. 7 SECTION 4.04. REMOVAL. Except as otherwise permitted with respect to subordinate officers, any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors. SECTION 4.05. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such time as shall be specified in such notice; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4.06. POWERS AND DUTIES. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors. ARTICLE 5 GENERAL PROVISIONS SECTION 5.01. FIXING THE RECORD DATE. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice of given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing 8 the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by Delaware Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by Delaware Law, the record date for determining stockholders entitled to consent to the corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 5.02. DIVIDENDS. Subject to limitations contained in Delaware Law and the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation. SECTION 5.03. FISCAL YEAR. The fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year. SECTION 5.04. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced. SECTION 5.05. VOTING OF STOCK OWNED BY THE CORPORATION. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote 9 at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. SECTION 5.06. AMENDMENTS. These bylaws or any of them, may be altered, amended or repealed, or new bylaws may be made, by the stockholders entitled to vote thereon at any annual or special meeting thereof or by the Board of Directors. 10 EX-3.3-1 4 EXHIBIT 3.3.1 Exhibit 3.3.1 CERTIFICATE OF INCORPORATION OF ADS ACQUISITION, INC. 1. The name of the corporation is: ADS ACQUISITION, INC. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the corporation shall have authority to issue is Seven Hundred Fifty (750); all of such shares shall be without par value. 5. The board of directors is authorized to make, alter or repeal the by-laws of the corporation. Election of directors need not be by written ballot. 6. The name and mailing address of the incorporator is: L. J. Vitalo Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 23rd day of July, 1996. /s/ L. J. Vitalo --------------------------------------- L. J. Vitalo CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION * * * * * ADS Acquisition, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of ADS Acquisition, Inc. resolutions were duly adopted setting forth a proposed amendment to the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of ADS Acquisition, Inc. be amended by changing the First Article thereof so that, as amended, said Article shall be and read as follows: The name of the corporation is Aerospace Display Systems, Inc. SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said ADS Acquisition, Inc. has caused this certificate to be signed by Robert A. Rankin, its Secretary, this Twenty-Third day of September, 1996. ADS Acquisition, Inc. By /s/ Robert Rankin ---------------------------- Secretary EX-3.3-2 5 EXHIBIT 3.3.2 BYLAWS OF AEROSPACE DISPLAY SYSTEMS, INC. ARTICLE 1 Offices Section 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 1.2 OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 Meetings of Stockholders Section 2.1 ANNUAL MEETINGS. Annual meetings of stockholders shall be held on a date set by the Board of Directors in each year for the purpose of electing directors and transacting such other proper business as may come before the meeting. Section 2.2 SPECIAL MEETINGS. Special meetings shall by held solely for the purpose or purposes specified in the notice of meeting. Section 2.3 TIME AND PLACE OF MEETINGS. Subject to the provisions of Section 2.1 each meeting of stockholders shall be held on such date, at such hour and at such place, either within or without the State of Delaware, as shall be fixed by the Board of Directors or in the notice of the meeting or, in the case of an adjourned meeting, as announced at the meeting at which the adjournment is taken. Section 2.4 NOTICE OF MEETINGS. A written notice of each meeting of stockholders, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given either personally or by mail to each stockholder entitled to vote at the meeting. Unless otherwise provided by statute, the notice shall be given not less than ten nor more than sixty days before the date of the meeting and, if mailed, shall be deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. No notice need be given to any person with whom communication is unlawful, nor shall there be any duty to apply for any permit or license to give notice to any such person. If the time and place of an adjourned meeting of stockholders are announced at the meeting at which the adjournment is taken, no notice need be given of the adjourned meeting unless that adjournment is for more than thirty days or unless, after the adjournment, a new record date is fixed for the adjourned meeting. Section 2.5 WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, notice of any meeting of stockholders need not be given to any stockholder who in person or by proxy shall have waived in writing notice of the meeting, either before or after such meeting, or who shall attend the meeting in person or by proxy, unless he attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 2.6 QUORUM AND MANNER OF ACTING. Subject to the provisions of these bylaws, the certificate of incorporation and statutes as to the vote that is required for a specified action, the presence in person or by proxy of the holders of 50% of the outstanding shares of the Corporation entitled to vote at any meeting of stockholders, plus one share, shall constitute a quorum for the transaction of business, and the vote in person or by proxy of the holders of a majority of the shares constituting such quorum shall be binding on all stockholders of the Corporation. A majority of the shares present in person or by proxy and entitled to vote may, regardless of whether or not they constitute a quorum, adjourn the meeting to another time and place. Any business which might have been transacted at the original meeting may be transacted at any adjourned meeting at which a quorum is present. Section 2.7 VOTING. Stockholders shall be entitled to cumulative voting at all elections of directors to the extent provided in or pursuant to the certificate of incorporation. Stockholders may vote by proxy but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 2.8 INSPECTION OF ELECTION. (a) The Board of Directors shall appoint an inspector of election to act at each meeting of stockholders and any adjournment thereof. If an inspector of election is not so appointed, or the person appointed as inspector fails or refuses to act, the chairman of the meeting shall appoint an inspector of election. 2 (b) The inspector of election shall determine the outstanding stock of the Corporation and the voting power of each class and series, the stock represented at the meeting and the existence of a quorum, shall receive votes or ballots, shall count and tabulate all votes and shall determine the result; and in connection therewith, the inspector shall determine the authority, validity and effect of proxies, hear and determine all challenges and questions, and do such other acts as may be proper to conduct the election or vote with fairness to all stockholders. (c) The inspector of election shall make a report in writing of any challenge or question or other matter determined by him and shall execute a certificate of any fact found in connection therewith. Any such report or certificate shall be filed with the record of the meeting. Section 2.9 LIST OF STOCKHOLDERS. A complete list of the stockholders entitled to vote at each meeting of stockholders, arranged in alphabetical order, and showing the address and number of shares registered in the name of each stockholder, shall be prepared and made available for examination during regular business hours by any stockholder for any purpose germane to the meeting. The list shall be available for such examination at the place where the meeting is to be held for a period of not less than ten days prior to the meeting and during the whole time of the meeting. Section 2.10 ACTION WITHOUT A MEETING. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. ARTICLE 3 Board of Directors Section 3.1 NUMBER. The number of directors shall be no less than one and no more than five, and shall be set by the Board of Directors by adoption of a resolution with respect thereto. Section 3.2 ORGANIZATION MEETINGS. As promptly as practicable after each annual meeting of stockholders, an organization meeting of the Board of Directors shall be held for 3 the purpose of organization and the transaction of other business. Section 3.3 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such place and time as may be designated by the Board. Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman, the President, any three directors, or, if less than three, the remaining directors. Section 3.5 BUSINESS OF MEETINGS. Except as otherwise expressly provided in these bylaws, any and all business may be transacted at any meeting of the Board of Directors; PROVIDED, that if so stated in the notice of meeting, the business transacted at a special meeting shall be limited to the purpose or purposes specified in the notice. Section 3.6 TIME AND PLACE OF MEETINGS. Subject to the provisions of Section 3.4 each meeting of the Board of Directors shall be held on such date, at such hour and in such place as fixed by the Board or in the notice or waivers of notice of the meeting or, in the case of an adjourned meeting, as announced at the meeting at which the adjournment is taken. Section 3.7 NOTICE OF MEETINGS. No notice need be given of any organization or regular meeting of the Board of Directors for which the date, hour and place have been fixed by the Board. Notice of the date, hour and place of all other organization and regular meetings, and of all special meetings, shall be given to each director personally, by telephone or telegraph or by mail. If by mail, the notice shall be deposited in the United States mail, postage prepaid, directed to the director at his residence or usual place of business as the same appear on the books of the Corporation not later than five days before the meeting. If given by telegraph, the notice shall be directed to the director at his residence or usual place of business as the same appear on the books of the Corporation not later than at any time during the day before the meeting. If given personally or by telephone, the notice shall be given not later than the day before the meeting. Section 3.8 WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, notice of any meeting of the Board of Directors need not be given to any director who shall have waived in writing notice of the meeting, either before or after the meeting, or who shall attend such meeting, unless he attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 4 Section 3.9 ATTENDANCE BY TELEPHONE. Directors may participate in meetings of the Board of Directors by means of conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear one another, and such participation shall constitute presence in person in the meeting. Section 3.10 QUORUM AND MANNER OF ACTING. A majority of the total number of directors at the time provided for pursuant to Section 3.1 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors and, except as otherwise provided in these bylaws, in the certificate of incorporation or by statute, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. A majority of the directors present at any meeting, regardless of whether or not they constitute a quorum, may adjourn the meeting to another time or place. Any business which might have been transacted at the original meeting may be transacted at any adjourned meeting at which a quorum is present. Section 3.11 ACTION WITHOUT A MEETING. Any action which could be taken at a meeting of the Board of Directors may be taken without a meeting if all of the directors consent to the action in writing and the writing or writings are filed with the minutes of the Board. Section 3.12 RESIGNATION OF DIRECTORS. Any director may resign at any time upon written notice to the Corporation. The resignation shall become effective at the time specified in the notice and, unless otherwise provided in the notice, acceptance of the resignation shall not be necessary to make it effective. Section 3.13 VACANCIES AND REMOVAL. Vacancies in the Board of Directors, except vacancies created by removal of a director by the shareholders, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until a successor is elected at an annual or a special meeting of the shareholders in accordance with these Bylaws. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders may elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 5 A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased, or if the shareholders fail at any annual or special meeting of shareholders at which any director or directors are elected to elect the full authorized number of directors to be voted for at that meeting. The Board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. All the directors, or any individual director or directors, may be removed from office, without cause, by the vote of the shareholders having a majority of the voting power entitling them to elect directors in place of those to be removed. ARTICLE 4 Committees of the Board of Directors Section 4.1 EXECUTIVE COMMITTEE. By resolution adopted by an affirmative vote of the majority of the whole Board of Directors, the Board may appoint an Executive Committee consisting of the chief executive officer of the Corporation, EX OFFICIO, and two or more other directors and, if deemed desirable, one or more directors as alternate members who may replace any absentee or disqualified member at any meeting of the Executive Committee. If so appointed, the Executive Committee shall, when the Board is not in session, have all the power and authority of the Board in the management of the business and affairs of the Corporation not reserved to the Board by Section 4.3 including, but not limited to, the power and authority to declare dividends, to authorize the issuance of stock and to adopt a certificate of ownership and merger. The Executive Committee shall keep a record of its acts and proceedings and shall report the same from time to time to the Board of Directors. Section 4.2 OTHER COMMITTEES. By resolution adopted by an affirmative vote of the majority of the whole Board of Directors, the Board may from time to time appoint such other committees of the Board, consisting of one or more directors and, if deemed desirable, one or more directors who shall act as alternate members and who may replace any absentee or disqualified member at any meeting of the committee, and may delegate to each such committee any of the powers and authority of the Board in the management of the business and affairs of the Corporation not reserved to the Board pursuant to Section 4.3. Each such committee shall keep a record of its acts and proceedings. 6 Section 4.3 POWERS RESERVED TO THE BOARD. No committee of the Board shall take any action to amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation) or these bylaws, adopt any agreement to merge or consolidate the Corporation, or recommend to the stockholders a sale, lease or exchange of all or substantially all of the property and assets of the Corporation, a dissolution of the Corporation or a revocation of a dissolution of the Corporation; nor shall any committee of the Board take any action which is required in these bylaws, in the certificate of incorporation or by statute to be taken by a vote of a specified proportion of the whole Board of Directors. Section 4.4 ELECTION OF COMMITTEE MEMBERS; VACANCIES. So far as practicable, members of the committees of the Board and their alternates (if any) shall be appointed at each organization meeting of the Board of Directors and, unless sooner discharged by an affirmative vote of the majority of the whole Board, shall hold office until the next organization meeting of the Board and until their respective successors are appointed. In the absence or disqualification of any member of a committee of the Board, the member or members (including alternates) present at any meeting of the committee and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at a meeting in place of any absent or disqualified member. Vacancies in committees of the Board created by death, resignation or removal may be filled by an affirmative vote of a majority of the whole Board of Directors. Section 4.5 MEETINGS. Each committee of the Board may provide for regular meetings of such committee. Special meetings of each committee may be called by any two members of the committee (or, if there is only one member, by that member in concert with the chief executive officer) or by the chief executive officer of the Corporation. The provisions of Section 3 regarding the business, time and place, notice and waivers of notice of meetings, attendance at meetings and action without a meeting shall apply to each committee of the Board, except that the references in such provisions to the directors and the Board of Directors shall be deemed respectively to be references to the members of the committee and to the committee. Section 4.6 QUORUM AND MANNER OF ACTING. A majority of the members of any committee of the Board shall constitute a quorum 7 for the transaction of business at meetings of the committee, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the committee. A majority of the members present at any meeting, regardless of whether or not they constitute a quorum, may adjourn the meeting to another time or place. Any business which might have been transacted at the original meeting may be transacted at any adjourned meeting at which a quorum is present. ARTICLE 5 Officers Section 5.1 ELECTION AND APPOINTMENT. The elected officers of the Corporation shall consist of a Chief Executive Officer, one or more Vice Presidents, a Treasurer, a Secretary and such other elected officers as shall from time to time be designated by the Board of Directors. The Board shall designate from among such elected officers a chief executive officer and a chief financial officer of the Corporation, and may from time to time make, or provide for, other designations it deems appropriate. The Board may also appoint, or provide for the appointment of, such other officers and agents as may from time to time appear necessary or advisable in the conduct of the affairs of the Corporation. Any number of offices may be held by the same person, except no person may at the same time be both the Chief Executive Officer and the chief financial officer. Section 5.2 DUTIES OF CHIEF EXECUTIVE OFFICER. The chief executive officer of the Corporation shall preside at all meetings of stockholders and (unless the Board of Directors elects a separate Chairman) at all meetings of the Board of Directors and the Executive Committee and, except to the extent otherwise provided in these bylaws or by the Board, shall have general authority to execute any and all documents in the name of the Corporation and general and active supervision and control of all of the business and affairs of the Corporation. In the absence of the chief executive officer, his duties shall be performed and his powers may be exercised by the chief financial officer or by such other officer as shall be designated either by the chief executive officer in writing or (failing such designation) by the Executive Committee or Board of Directors. Section 5.3 DUTIES OF OTHER OFFICERS. The other officers of the Corporation shall have such powers and duties not inconsistent with these bylaws as may from time to time be conferred upon them in or pursuant to resolutions of the Board of Directors, and shall have such additional powers and duties not inconsistent with such resolutions as may from time to time be assigned to them by any competent superior officer. The Board shall assign to one or more of the officers of the Corporation the duty to record the proceedings of the meetings of the 8 stockholders and the Board of Directors in a book to be kept for that purpose. Section 5.4 TERM OF OFFICE AND VACANCY. So far as practicable, the elected officers shall be elected at each organization meeting of the Board, and shall hold office until the next organization meeting of the Board and until their respective successors are elected and qualified. If a vacancy shall occur in any elected office, the Board of Directors may elect a successor for the remainder of the term. Appointed officers shall hold office at the pleasure of the Board. Any officer may resign by written notice to the Corporation. Section 5.5 REMOVAL OF ELECTED OFFICERS. Elected officers may be removed at any time, either for or without cause, by the affirmative vote of a majority of the whole Board of Directors at a meeting called for that purpose. Section 5.6 COMPENSATION OF ELECTED OFFICERS. The compensation of all elected officers of the Corporation shall be fixed from time to time by the Board of Directors. ARTICLE 6 Shares and Transfer of Shares Section 6.1 CERTIFICATES. Every stockholder shall be entitled to a certificate signed by the Chairman or Vice Chairman of the Board of Directors, or the Chief Executive Officer or the President, and by the Chief Financial Officer or the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the class and number of shares owned by him in the Corporation; PROVIDED that, any and all signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or it were such officer, transfer agent or registrar at the date of issue. Section 6.2 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may, in its discretion, appoint one or more responsible banks or trust companies in the City of New York or in such other city or cities (if any) as the Board may deem advisable, from time to time, to act as transfer agents and registrars of shares of the Corporation; and, when such appointments shall have been made, no certificate for shares of the Corporation shall be valid until countersigned by one of such transfer agents and registered by one of such registrars. 9 Section 6.3 TRANSFERS OF SHARES. Shares of the Corporation may be transferred by delivery of the certificates therefor, accompanied either by an assignment in writing on the back of the certificates or by written power of attorney to sell, assign and transfer the same, signed by the record holder thereof; but no transfer shall affect the right of the Corporation to pay any dividend upon the shares to the holder of record thereof, or to treat the holder of record as the holder in fact thereof for all purposes, and no transfer shall be valid, except between the parties thereto, until such transfer shall have been made upon the books of the Corporation. Section 6.4 LOST CERTIFICATES. In case any certificate for shares of the Corporation shall be lost, stolen or destroyed, the Board of Directors, in its discretion, or any transfer agent thereunto duly authorized by the Board, may authorize the issue of a substitute certificate in place of the certificate so lost, stolen or destroyed, and may cause such substitute certificate to be countersigned by the appropriate transfer agent (if any) and registered by the appropriate registrar (if any); PROVIDED that, in each such case, the applicant for a substitute certificate shall furnish to the Corporation and to such of its transfer agents and registrars as may require the same, evidence to their satisfaction, in their discretion, of the loss, theft or destruction of such certificate and of the ownership thereof, and also such security or indemnity as may by them be required. Section 6.5 RECORD DATES. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or to express consent to action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date which shall be not more than sixty nor less than ten days before the date of any meeting of stockholders, and not more than sixty days prior to any other action. In such case, those stockholders, and only those stockholders, who are stockholders of record on the date fixed by the Board of Directors shall, notwithstanding any subsequent transfer of shares on the books of the Corporation, be entitled to notice of and to vote at such meeting of stockholders, or any adjournment thereof, or to express consent to such corporate action in writing without a meeting, or entitled to receive payment of such dividend or other distribution or allotment of rights, or entitled to exercise rights in respect of any such change, conversion or exchange of shares or to participate in any such other lawful action. 10 ARTICLE 7 Miscellaneous Section 7.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 7.2 SIGNATURE ON NEGOTIABLE INSTRUMENTS. All bills, notes, checks or other instruments for the payment of money shall be signed or countersigned in such manner as from time to time may be prescribed by resolution of the Board of Directors. Section 7.3 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND FIDUCIARIES; INSURANCE. (a) The Corporation may indemnify, in accordance with and to the full extent permitted by the laws of the State of Delaware, as such laws may be amended from time to time, and shall so indemnify to the full extent permitted by such laws, any person (and the heirs and legal representatives of any such person) made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is or was a director, officer, employee, agent, or fiduciary of the Corporation or any constituent corporation absorbed in a consolidation or merger, or serves or served as such with another corporation, partnership, joint venture, trust or other enterprise at the request of the Corporation or any such constituent corporation. (b) By action of the Board of Directors notwithstanding any interest of the directors in such action, the Corporation may purchase and maintain insurance in such amounts as the Board of Directors deems appropriate on behalf of any person who is or was a director, officer, employee, agent or fiduciary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation shall have power to indemnify him against such liability under the provisions of this Section. 11 ARTICLE 8 Bylaw Amendments Section 8.1 BY THE STOCKHOLDERS. These bylaws may be amended by the stockholders at a meeting called for the purpose in any manner not inconsistent with any provision of law or of the certificate of incorporation. Section 8.2 BY THE DIRECTORS. These bylaws may be amended by the affirmative vote of a majority of the whole Board of Directors in any manner not inconsistent with any provision of law or of the certificate of incorporation. 12 EX-3.4-1 6 EXHIBIT 3.4.1 ARTICLES OF INCORPORATION OF [STAMP] AUDIO INTERNATIONAL, INC. The undersigned natural person of the age of twenty-one (21) years or more, in order to form a corporation for the purposes hereinafter stated, under and pursuant to the Arkansas Business Corporation Act, hereby certifies as follows: 1. The name of this corporation is Audio International, Inc. 2. The nature of the business of the corporation and the objects or purposes proposed to be transacted, promoted or carried on by it, are as follows: (a) The design and marketing of audio and video systems. (b) To conduct any other business enterprise not contrary to law. (c) To buy, sell, lease, use, develop, mortgage, improve and otherwise deal in and dispose of all types of real or personal property in connection with the conduct of business enterprise carried on by the corporation. (d) To exercise all of the powers enumerated in Section 4 of the Arkansas Business Corporation Act. 3. The period of existence of this corporation shall be perpetual. 4. The registered office of this corporation shall be located at 4618 John F. Kennedy Blvd, Suite 198, North Little Rock, Arkansas 72116 and the name of the registered agent of this corporation at that address is Wayne Ritchie. ARTICLES OF INCORPORATION 5. The total amount of the authorized capital stock of this corporation is 1,000 shares of common stock with $1.00 par value each. 6. This corporation shall not commence business until at least Three Hundred Dollars ($300.00) has been received as consideration for the issuance of shares. 7. The name and post office address of each incorporator is as follows:
NAME: POST OFFICE ADDRESS: ---- ------------------- Neil Deininger 425 North University Little Rock, Arkansas 72205-3108
8. The number of Directors constituting the initial Board of Directors shall be two. At the meeting of the shareholders next following the time when the number of shareholders of record shall be more than two, additional Directors shall be elected so that the total number of Directors shall be equal to the number of shareholders of record (but not to exceed five unless the corporate bylaws specifically so provide). 9. The President and Secretary of the corporation shall have the authority on behalf of the corporation to enter into any contract between the corporation and all of its shareholders (a) imposing restrictions on the future transfer (whether inter vivos, by inheritance or testamentary gift), hypothecation or other disposition of its shares; (b) granting purchase options to the corporation or its shareholders; or (c) requiring the corporation or its shareholders to purchase such shares upon stated contingencies. In addition, any and all of such restrictions, options or 2 ARTICLES OF INCORPORATION requirements may be imposed on all shares of the corporation, issued and unissued, upon the unanimous resolution of the Board of Directors and the consent of all stockholders as of the date of the Board's resolution. 10. No contract entered into by this corporation shall be invalid or unenforceable because of the interest of any Director in the contract, either directly or indirectly. 11. (a) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the 3 ARTICLES OF INCORPORATION corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by it or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a good manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in request of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) To the extent that a director, officer, employee, or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) or (b), or in the defense of any claim, issue or matter therein, he shall 4 ARTICLES OF INCORPORATION be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsections (a) or (b) (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standards of conduct set forth in subsections (a) or (b). Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the shareholders. (e) Expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in subsection (d) upon receipt of an undertaking by or on behalf of the director, officer, employee, or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in this section. (f) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, 5 ARTICLES OF INCORPORATION officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. (h) The powers and duties of the corporation to indemnify any person under this Article shall apply with equal force whether an action, suit, or proceeding is threatened or commenced in this State or outside this State. 12. The Board of Directors of the corporation shall be authorized to repurchase or redeem shares of the corporation whether the same be done from earned surplus or capital surplus, other than revaluation surplus, of the corporation, so long as the same shall otherwise be authorized by law and in conformity with the provisions of the Articles of Incorporation of the corporation or any amendment thereof; provided, however, such provisions shall not be construed as a right of the corporation to purchase or redeem any share of the corporation without the consent of the holder of such share unless such share shall have been issued with a right of repurchase or redemption reserved to the corporation or pursuant to any lawful agreement between the corporation and such shareholder. 6 ARTICLES OF INCORPORATION 13. Unless the bylaws of the corporation otherwise provide for a greater number, a quorum at any meeting of the shareholders of the corporation shall consist of one-third (1/3) of the shares entitled to vote thereat, represented in person or by duly authorized proxy at such meeting. 14. The corporation, acting through its Board of Directors, shall be authorized to enter into any general or limited partnership with any other person, firm or corporation for the purposes of carrying out any of the objects or purposes of the corporation. SIGNED this 2nd day of January, 1987. /s/ Neil Deininger -------------------------------- Neil Deininger 7 ARTICLES OF AMENDMENT OF [STAMP] AUDIO INTERNATIONAL, INC. We, the President and Secretary of Audio International, Inc., a business corporation duly organized, created and existing under and by virtue of the laws of the State of Arkansas, hereby certify that: The following amendment to the Articles of Incorporation was adopted at a special meeting of the stockholders on the 20th day of FEBRUARY, 1996: RESOLVED, that the Corporation elects to be treated as a corporation under Arkansas Business Corporation Act of 1987. FURTHER RESOLVED, that the Corporation is hereby authorized to amend Article 4 of its Articles of Incorporation to read as follows: 4. The registered office of the Corporation shall be located at 7300 Industry Drive, North Little Rock, Arkansas, 72117, and the name of the registered agent of this Corporation at that address is Wayne Richie. On the date of the adoption of the resolution there were 100 shares of common stock outstanding and all of said stock voted affirmatively for the amendment hereinabove set forth. IN TESTIMONY WHEREOF, we have hereunto set our hands as the President and Secretary, respectively, of Audio International, Inc., on this 20th day of FEBRUARY, 1996. AUDIO INTERNATIONAL, INC. By: /s/ Rick Marsh ------------------------------------------ Rick Marsh, President ATTEST: /s/ Wayne Richie - ------------------------------- Wayne Richie, Secretary 2 EX-3.4-2 7 EXHIBIT 3.4.2 Exhibit 3.4.2 AMENDED AND RESTATED BYLAWS OF AUDIO INTERNATIONAL, INC. ARTICLE I STOCK 1. CERTIFICATES. Certificates of stock shall be issued to each holder of fully paid stock in numerical order. Each certificate shall be signed by the President and attested by the Secretary. A record of each certificate shall be kept in the corporation's records. 2. FORM. The form of the certificate to represent stock ownership in the corporation shall be fixed by the original incorporators, and may be changed from time to time by the Board of Directors. 3. TRANSFER. Shares of the corporation shall be transferred on its books only upon the surrender to the corporation of the share certificates duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. In that event, the surrendered certificates shall be canceled, new certificates issued to the person entitled to them, and the transaction recorded on the books of the corporation. 4. LOST CERTIFICATES. The Board of Directors shall direct a new certificate to be issued in place of a certificate alleged to 1 have been destroyed or lost if the owner makes an affidavit that it is destroyed or lost, but the Board in its discretion may, as a condition precedent to issuing the new certificate, require the owner to give the corporation a bond or security acceptable to the Board as indemnity against any claim that may be made against the corporation on the certificate allegedly destroyed or lost. 5. RESTRICTIONS ON TRANSFER. The President and Secretary of the corporation shall have the authority on behalf of the corporation to enter into any contract between the corporation and all of its shareholders (a) imposing restrictions on the future transfer (whether inter vivos, by inheritance or testamentary gift), hypothecation or other disposition of its shares; (b) granting purchase options to the corporation or its shareholders; or (c) requiring the corporation or its shareholders to purchase such shares upon stated contingencies. In addition, any or all of such restrictions, options or requirements may be imposed on all shares of the corporation, issued and unissued, upon the unanimous resolution of the Board of Directors and the consent of all stockholders as of the date of the Board's resolution. ARTICLE II STOCKHOLDERS 1. ANNUAL MEETING. The annual meeting of the stockholders of this corporation shall be held at such place as the Directors shall designate, the date of the meeting to be the last business day of the corporation's fiscal year. 2 2. SPECIAL MEETINGS. Special meetings of the stockholders may be called at any time by the President, by resolution of the Board of Directors, or by any member of the Board of Directors. 3. NOTICE. Written notice of the stockholders' meetings shall be given either personally or by mail, to each stockholder of record at his address, as the same appears on the stock book of the corporation, not less than ten (10) nor more than fifty (50) days before the meeting is to be held. If a proposal to increase the authorized capital stock or bonded indebtedness is to be submitted, notice must be given not less than sixty (60) nor more than seventy-five (75) days before the meeting. In case of special meetings, the notice shall also include a statement of the purpose or purposes for which the meeting is called. If at any annual meeting there shall be presented a proposal to increase the authorized capital stock or bonded indebtedness, to dissolve, merge or consolidate, or to sell, lease, exchange, or otherwise dispose of all or substantially all of the corporation's assets, to amend the Articles of Incorporation or to effect any other fundamental corporate change, then that annual meeting shall be deemed, for the purpose of notice, a special meeting. Notice of any meeting or service of such notice may be waived in writing before or after the meeting by a stockholder or by the attendance in person or by proxy of any stockholder at such meeting. No irregularity of notice of any regular or special meeting of the stockholders shall invalidate such meeting or any proceeding thereat. 3 4. QUORUM. A quorum at any meeting of the stockholders shall consist of a majority in interest in the stock issued and outstanding then entitled to vote, represented in person or by proxy. A majority of such quorum shall decide any question that may come before the meeting. 5. PROXIES. A stockholder may vote at any meeting of the stockholders by being present in person or by giving to some other person present at the meeting a written proxy. 6. VOTING. In the election of Directors, the holder of each share of stock then entitled to vote shall be entitled to cast votes equal to the number of Directors to be elected. Directors shall be elected at the annual meeting of stockholders. In all other matters to be determined at a stockholders' meeting, the holders of shares of stock then entitled to vote shall be entitled to cast votes equal to the number of shares held. 7. INFORMAL ACTION BY SHAREHOLDERS. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. ARTICLE III DIRECTORS 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its Board of Directors. 4 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of the corporation shall be three. Each Director shall hold office for the term for which he is elected or until his successor shall have been elected and qualified. Directors need not be residents of Arkansas nor shareholders of the corporation. 3. VACANCIES. If a vacancy occurs in the Board of Directors by reason of death or resignation, or if the stockholders fail to fill all the vacancies in the Board of Directors at the annual meeting of stockholders or any meeting for the purpose of electing Directors, the vacancies shall be filled by the affirmative vote of a majority of the remaining members of the Board of Directors. 4. RESIGNATIONS. A Director may resign at any time by filing his written resignation with the Secretary. 5. REMOVAL. A Director may be removed at any time, with or without cause, by a special stockholders' meeting called expressly for that purpose. 6. MEETINGS. Meetings of the Board of Directors shall be held on call of any member after giving notice in writing or otherwise to all members at least twenty-four hours prior thereto. Notice of any meeting or service of such notice may be waived in writing before or after the meeting by a Director or by attendance at such meeting. No irregularity of notice of such meeting shall invalidate such meeting or any proceeding thereat. 7. QUORUM. A quorum of any meeting of the Board of Directors shall consist of a majority of the entire membership of 5 the Board. A majority of such quorum shall decide any question that may come before the meeting. 8. INFORMAL ACTION. Action taken by a majority of the Directors without a meeting in respect to any corporation matter shall be valid if, before or after such action, all Board members sign and file with the Secretary for inclusion in the corporate minute book a memorandum showing (a) the nature of the action taken, (b) the consent of the each Board member, and (c) the names of Directors approving and Directors opposing such action. 9. PROXIES. Directors may not vote by proxy. 10. ELECTION OF OFFICERS. Officers of the corporation shall be elected by the Board of Directors and shall serve at the pleasure of the Board of Directors subject to any contracts of employment entered into by the corporation. The Board of Directors shall fix the compensation of all officers of the corporation. ARTICLE IV OFFICERS 1. NUMBER. The officers of the corporation shall be a Chief Executive Officer, a President, a Chief Operating Officer, one or more Vice Presidents (the number and designation thereof to be determined by the Board of Directors), a Treasurer, a Secretary and such other officers as may be elected in accordance with these bylaws. If there is only one shareholder, any two offices may be held by the same person. If there is more than one shareholder, any two offices may be held by the same person, except the offices of President and Secretary. 6 2. VACANCIES. When a vacancy occurs in one of the executive offices by death, resignation or otherwise, it shall be filled by the Board of Directors. The officer so selected shall hold offices until his successor is chosen and qualified. 3. EXECUTION OF WRITTEN INSTRUMENTS. Leases, deeds, mortgages, and contracts not in the ordinary course of business may be executed by the Chairman of the Board, the President, or the Chief Operating Officer and attested by the Secretary or Treasurer unless the Board of Directors shall in a particular situation designate another procedure for their execution. The Board of Directors may authorize any one or more officers and/or employees to execute contracts in the ordinary course of business on behalf of the corporation, and such authority may be general or confined to specific instances. 4. CHECKS AND NOTES. Checks, notes, drafts and demands for money shall be signed by any one or more officers and/or employees who may from time to time be designated by the Board of Directors. 5. VOTING SHARES IN OTHER CORPORATIONS. In the absence of other arrangements by the Board of Directors, shares of stock issued by any other corporation and owned or controlled by this corporation may be voted at any shareholders' meeting of the other corporation by the Chairman of the Board, the President, or the Chief Executive Officer of this corporation; and in the event neither the Chairman of the Board, the President, nor the Chief Executive Officer is to be present at a meeting, the shares may be voted by such person as the President and Secretary of the 7 corporation shall by duly elected proxy designate to represent the corporation at the meeting. 6. REIMBURSEMENT OF PAYMENTS. Any payments made to an officer such as salary, commission, bonus, interest, or rent, or entertainment expense incurred by him, which shall be disallowed in whole or in part as a deductible expense by the Internal Revenue Service, shall be reimbursed by such officer to the corporation to the full extent of such disallowance. It shall be the duty of the Board of Directors to enforce payment of each such amount disallowed. In lieu of payment by the officer, subject to the determination of the Board of Directors, proportionate amounts may be withheld from his future compensation payments until the amount owed to the corporation has been recovered. ARTICLE V AMENDMENTS Bylaws may be adopted, amended or repealed at any meeting of the Board of Directors by the unanimous consent of the Directors, unless the Articles of Incorporation provide for the adoption, amendment or repeal by the shareholders, in which event action thereon may be taken at any meeting of the shareholders by the unanimous consent of the shares outstanding and a majority of the outstanding shares of any other class which may be substantially adversely affected by such action. 8 EX-3.5-1 8 EXHIBIT 3.5.1 Exhibit 3.5.1 ARTICLES OF INCORPORATION - of - AVTECH CORPORATION KNOW ALL MEN BY THESE PRESENTS: That we, GEORGE KINNEAR, COLIN W. ACKERSON and JAMES S. TURNER, being citizens of the United States, do hereby associate ourselves together as a corporation under the general incorporation laws of the State of Washington, and make, subscribe and adopt the following Articles of Incorporation, in triplicate, to-wit: ARTICLE I NAME The name of this corporation shall be and is: AVTECH CORPORATION ARTICLE II OBJECTS AND PURPOSES The objects and purposes for which this corporation is formed are, and shall be, as follows: 1. To engage in the fabrication and manufacture of electronic audio/visual products. 2. To engage in industrial research and development, - 1 - generally, and of electronic audio/visual products, in particular. 3. To manufacture, sell, license or rent equipment and products of all kinds and to provide audio/visual services utilizing presentation devices and systems. 4. To engage in the business of manufacturing, distributing and selling in any or all of its phases. 5. To contract with machinery and equipment manufacturers for the purchase of items for resale. 6. To buy, sell, own and deal in real estate, livestock, bonds, securities and other properties or investments of all kinds on its own account or as agent, factor or broker, in the United States and elsewhere. 7. To establish, form and subsidize or otherwise assist in the promotion or foundation of other companies or the prosecution of any other undertakings or enterprises which may advance directly or indirectly the objects of this corporation, and to secure by purchase, trade, subscription, or otherwise acquire and to deal and trade in the stock, certificates of interest, debentures, bonds or other securities of other companies, trusts or other organizations. 8. To enter into any partnership arrangements. 9. To borrow money and to issue bills, notes, bonds and other forms of commercial paper and secure the payment of the same by mortgage or pledge of any or all of the corporation's - 2 - property; to buy, lease, acquire, own, hold, sell, let or otherwise dispose of property of all kinds, both real and personal, which may be necessary, incident or convenient to the carrying on of said business. 10. To acquire patents, licenses or agreements covering equipment or property and to do every act and thing which may be incidental, auxiliary or relative to, connected with, or necessary for, the accomplishment of any one or all of the purposes and objects herein specified, and to do the same as principal, agent or broker. 11. From time to time, to do any one or more of the acts, and to accomplish any one or more of the objects, herein set forth, to conduct its business wherever necessary or desirable, whether in the State of Washington, or in other states and territories of the United States, or in foreign countries, and to maintain one office or more than one office. 12. To use and enjoy all the general rights, powers, and privileges, whether expressed or implied, now conferred upon or granted to, or hereabout to be conferred upon or granted to, private corporations organized under the general corporation laws of the State of Washington. ARTICLE III TIME OF EXISTENCE The duration of the corporation shall be perpetual. - 3 - ARTICLE IV POST OFFICE ADDRESS The location and post office address of the registered office of this corporation shall be: 3312 White Building, Seattle 1, Washington ARTICLE V AUTHORIZED CAPITAL STOCK The authorized capital stock of this corporation shall be divided into fifty thousand (50,000) shares of common stock without par value. ARTICLE VI PAID-IN CAPITAL The amount of paid-in capital with which this corporation will begin business is Five Hundred Dollars ($500.00). ARTICLE VII DIRECTORS The directors who shall manage the affairs of this corporation shall be five (5) in number, but the number of directors may be increased to any number not exceeding seven (7) at any annual meeting of the stockholders, or at any special meeting of the stockholders, or at any special meeting of the stockholders called for that purpose. The directors herein named shall manage the affairs of this company for a period of one month, and thereafter until - 4 - their successors are elected and qualified. The names and post office addresses of the first directors are as follows: Colin W. Ackerson 8015 - 39th NE Seattle 15, Washington Philip S. Swanson 2504 NE 120th Seattle, Washington Robert L. Hancock 4002 NE 72nd Seattle 15, Washington Robert L. Rodwell 16930 NE 16th Place Bellevue, Washington George Kinnear 1621 - 72nd SE Mercer Island, Washington ARTICLE VIII INCORPORATORS The following statement contains the name and post office address of each incorporator, and a statement of the number of shares subscribed by each of them: George Kinnear 1621 - 72nd SE One (1) Share Mercer Island, Wn. James S. Turner 1417 - 102nd NE One (1) Share Bellevue, Wn. Colin W. Ackerson 8015 - 39th NE Four Hundred Ninety Seattle 15, Wn. Eight (498) Shares ARTICLE IX BY-LAWS The board of directors of this corporation shall have the authority to make and alter by-laws not inconsistent with law or with the Articles of Incorporation, and subject to the power - 5 - of the shareholders to change or repeal such by-laws. IN WITNESS WHEREOF, we, the undersigned, as incorporators, have hereunto set our hands and seals in triplicate at Seattle, Washington, this 20th day of August, 1963. /s/ George Kinnear ------------------------------------- George Kinnear /s/ James S. Turner ------------------------------------- James S. Turner /s/ Colin W. Ackerson ------------------------------------- Colin W. Ackerson STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) THIS IS TO CERTIFY that on this 20th day of August, 1963, before me, a Notary Public in and for said county and state, duly commissioned and sworn, personally appeared GEORGE KINNEAR, JAMES S. TURNER and COLIN W. ACKERSON, to me known to be the individuals described in and who executed the foregoing instrument, and acknowledged that they signed and sealed the same as their free and voluntary act and deed, for the uses and purposes therein mentioned. WITNESS my hand and official seal the day and year herein first above written. /s/ Rita M. Wampole ------------------------------------- Notary Public in and for the State of Washington, residing at Bellevue - 6 - A F F I D A V I T STATE OF WASHINGTON ) ) SS COUNTY OF KING JAMES S. TURNER being first duly sworn on oath deposes and says: That he is incorporator of AVTECH CORPORATION and that to the best of his knowledge and belief the value received and to be received by said corporation in return for the issuance of its non-par-value stock does not exceed the sum of $50,000.00. /s/ James S. Turner ------------------------------------------ SUBSCRIBED and sworn to before me this 2nd day of October, 1963. /s/ Stanley B. Allper ------------------------------------------ NOTARY PUBLIC in and for the State of Washington, residing at Seattle ARTICLES OF AMENDMENT OF [STAMP] AVTECH, INC. --------- This is to certify that at a special meeting of the stockholders and directors of the above corporation, held at the place of business of the corporation, 4241 - 24th West, Seattle, Washington, on Saturday, May 9, 1970, at 10:00 A.M., which meeting was attended by the required number of stockholders and directors of the corporation or represented by their proxies, the amendment of the Articles of Incorporation, herein stated, was unanimously adopted, there being 34,800 shares outstanding. RESOLVED, that Article V, authorized capital stock, of the Articles of Incorporation shall be, and the same is hereby amended to read as follows: "The capital stock in this corporation shall consist of 500,000 shares of common no-par stock. Each share of common stock in this corporation outstanding when this paragraph becomes effective shall be reclassified as and changed to 10 shares, fully paid of common stock without par value, which shall be included in the 500,000 shares of common stock without par value herein authorized." /s/ John R. Barnard ---------------------------------------- President /s/ Fred R. Butterworth ---------------------------------------- Secretary STATE OF WASHINGTON ) ) ss COUNTY OF KING ) On this day personally appeared before me, John Barnard and Fred R. Butterworth, to me known to be the president and secretary respectively, of the above named corporation, and the individuals described in and who executed the foregoing instrument, and acknowledged that the signed the same as their free and voluntary act and deed for the uses and purposes therein mentioned. Given under my hand and official seal this 17th day of August, 1970. /s/ ILLEGIBLE ---------------------------------------- Notary Public in and for the state of Washington, residing at Seattle -2- AFFIDAVIT AS TO VALUE OF NON PAR STOCK STATE OF WASHINGTON ) ) ss COUNTY OF KING ) Fred R. Butterworth, being first duly sworn, on oath deposes and says: That he is a director and the Secretary of Avtech, Inc., and to the best of his knowledge and belief the value received and to be received by said corporation for the issuance of its non-par value stock does not exceed the sum of $100,000. /s/ Fred R. Butterworth ----------------------------------- Fred R. Butterworth SUBSCRIBED AND SWORN to before me this 17th day of August, 1970. /s/ ILLEGIBLE ---------------------------------------- Notary Public in and for the State of Washington, residing at Seattle AMENDMENT TO ARTICLES OF INCORPORATION OF AVTECH CORPORATION [STAMP] Articles of Amendment to the Articles of Incorporation of AVTECH CORPORATION, a Washington corporation, are herein executed by the Corporation, pursuant to the provisions of the Revised Code of Washington 23A.16.040 and 23A.16.050, as follows: 1. The name of the corporation is AVTECH CORPORATION. 2. The Amendment to the Articles of Incorporation is as follows: "ARTICLE X At each election for directors every shareholder shall have the right to vote in person or by proxy the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote. No cumulative voting for one or more directors shall be permitted." 3. The number of shares outstanding in said Corporation is 450,000 shares of no par value common stock. 4. The number of shares entitled to vote on such Amendment was 450,000. 5. The number of shares voting for the Amendment was 314,823.5 and the number of shares voted against such Amendment was 126,848.5. 6. The Amendment received the required two-thirds vote of the Shareholders and was adopted on March 30, 1984. DATED this 30th day of March, 1984. AVTECH CORPORATION By: /s/ Robert L. Hancock ---------------------------------- Robert L. Hancock President By: /s/ Fred R. Butterworth ---------------------------------- Fred R. Butterworth Secretary -2- EX. 99.12 AMENDMENT TO ARTICLES OF INCORPORATION OF AVTECH CORPORATION [STAMP] Articles of Amendment to the Articles of Incorporation of AVTECH CORPORATION, a Washington corporation, are herein executed by the corporation, pursuant to the provisions of the Revised Code of Washington 23A.16.040 and 23A.16.050, as follows: 1. The name of the corporation is AVTECH CORPORATION. 2. The Amendment to the Articles of Incorporation is as follows: The capital stock in this Corporation shall consist of 1.5 Million shares of common no par stock. 3. The number of shares outstanding in said corporation is 446,543 1/2 shares of no par value common stock. 4. The number of shares entitled to vote on such Amendment was 446,543 1/2. 5. The number of shares voting for the amendment was 433,096.4, and no shares were voted against such amendment. 6. The Amendment was adopted by the Shareholders at their annual meeting held on March 17, 1989, pursuant to notice to all shareholders of record. DATED this 10th day of April, 1989. AVTECH CORPORATION By /s/ Fred R. Butterworth ------------------------------------------- Fred R. Butterworth, Secretary EX-3.5-2 9 EXHIBIT 3.5.2 Exhibit 99.26 BY-LAWS of AVTECH CORPORATION ARTICLE I OFFICERS Section 1. In addition to the Board of Directors, the officers of this corporation shall consist of a President, three Vice-Presidents, a Secretary and Treasurer, who shall be chosen by the Board of Directors after each annual meeting of stockholders, to serve for a period of one year or until their successors are elected and qualified, and who may be removed by the Board at will, and none of the officers, except the President, need be members of the Board, but a Vice-President who is not a Director may not succeed to the office of President, and one person may hold more than one office, except that the President may not hold any other office. In addition, the Board of directors at any regular or special meeting, may elect one or more assistant secretaries and assistant treasurers. ARTICLE II. BOARD OF DIRECTORS property of the corporation shall be exercised, conducted and controlled by a board of not less than five (5) Directors and not more than seven (7) Directors. Section 2. Each Director shall hold office for one year, or for such period as he may have been appointed and until his successor shall have been elected and shall qualify. Section 3. The Board of Directors shall have power to call special meetings of the stockholders when they deem it necessary, and they shall call such meetings at any time upon a written request for that purpose by persons representing in their own right or by proxy one-third of all the capital stock, notice thereof to be given in like manner as provided for other special stockholders' meetings. Section 4. A majority of the Board shall have power to call a special meeting of the Board of Directors whenever the President, after request for that purpose made to him in writing by a majority of the Directors, shall refuse or neglect to call such meeting, and notice of the meeting shall be given as for other special meetings of the Board of Directors except that it shall be signed by the members issuing the call. Section 5. Whenever any vacancy shall happen -2- among the Directors, by death, resignation, or otherwise, except by removal and the election of his successor as provided by Section 31, Paragraph IV, Uniform Business Corporation Act, it shall be filled by appointment of the Board of Directors. Such Director so appointed shall hold office until his successor is elected at the next annual meeting of the stockholders or at any special meeting, duly called for that purpose prior thereto. ARTICLE III PRESIDENT Section 1. The President shall preside at all meetings of the Directors or stockholders; he shall sign as President all certificates of stock and all contracts or instruments in writing when and as he shall deem the same to be for the best interest of the corporation; he shall be the general executive head of the corporation, and shall perform such other duties as the Board of Directors may from time to time require. ARTICLE IV VICE-PRESIDENT Section 1. In the absence of the President, the Vice-President, when present, shall have all of the power of the President and perform all his duties. He shall have such -3- other powers and duties as the board may determine. ARTICLE V. SECRETARY AND ASSISTANT SECRETARIES Section 1. It shall be the duty of the Secretary to keep records and minutes of all the meetings of the Board of Directors and stockholders; he shall sign and keep the records of the stock certificates and the Seal of the Corporation shall be in his custody, and he shall perform such other duties as the Directors may require of him. Section 2. The Assistant Secretaries, in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence of disability of the Secretary, perform the duties and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI. TREASURER Section 1. It shall be the duty of the Treasurer to keep safely all moneys and securities of the corporation and distribute or deliver the same under the direction of the Board of Directors; he shall submit a statement of his accounts with -4- vouchers, when called for by the President or Directors, and shall perform such other duties and give such bond as the Board of Directors may require. Section 2. The Assistant Treasurers, in the order of their seniority, unless otherwise determined by the Board of Directors, shall, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VII MEETINGS Section 1. The annual meeting of the stockholders shall be held on the second Tuesday of January of each year at the hour of 10:00 o'clock A.M., at the registered office of the corporation or at such other place as may be lawful. If this day falls on a holiday, the meeting shall be held on the next business day. It shall be the duty of the Secretary to cause notice of such meeting to be mailed to each stockholder at his post office address as last known to the Secretary, at least ten (10) days before the day of the meeting, but a failure to give or send such notice or any irregularity therein shall not -5- affect the validity of any annual meeting or of any proceeding in such meeting if held at the registered office. Section 2. At all stockholders' meetings a majority of the outstanding stock of the corporation must be represented in person or by proxy in order to form a quorum, and all proxies must be duly executed and filed with the Secretary before they are used. Section 3. The regular meeting of the Board of Directors shall be held at the registered office immediately following the final adjournment of each annual meeting without notice, for the purpose of organizing the Board and the election of officers and the transaction of any business. Section 4. Special meetings of the Board of Directors may be held at such time and place within or without the State of Washington as the Board may from time to time appoint. Special meetings of the Board may be called by the President, or by a majority of the Board, whenever he or they may deem it expedient, by notice in writing, signed by the President, or by the Secretary by order of the President, or signed by a majority of the Directors, stating the time, place and objects of the meeting, sent to the several Directors by letter or telegram, mailed or sent to each Director at his usual business address at least forty-eight (48) hours before the time of meeting, but notice -6- may be waived by any or all of the Directors, and if notice be waived by all of the directors, a special meeting may be held at any time or place to consider any business. Any Director who is present at and participates in a meeting of the Directors shall be deemed to have waived notice thereof and consented to the call and holding of the meeting. Section 5. Special meetings of the stockholders may be called by the President or the Board of Directors whenever he or they may deem it expedient, to be held at any lawful place, the call to be by notice in writing, signed by the Secretary by order of the President, or by order of the Board of Directors, or by the President, or by a majority of the board, stating the time, place and objects of the meeting, sent to the several stockholders by letter, mailed to each stockholder at his post office address last known to the Secretary at least ten (10) days before the day of meeting, but if notice be waived by all of the stockholders or proxies, a special meeting may be held at any time and place to consider any business. Any stockholder who is present at and participates in a meeting of the stockholders shall be deemed to have waived notice thereof and consented to the call and holding of the meeting. -7- ARTICLE VIII. LOST CERTIFICATES OF STOCK Section 1. If a certificate of stock is lost or destroyed, the owner thereof may make application on oath in writing to the Board of Directors setting forth the facts and the Board of Directors, if satisfied of such loss or destruction, may direct such owner to give a satisfactory bond with sureties to the company indemnifying it against any loss incurred, if such certificate be found and held to be good against the company, and shall upon receipt of such bond order the officers of the company to issue a duplicate in lieu thereof. ARTICLE IX. SEAL Section 1. The Board of Directors shall provide a suitable seal for the corporation, which shall be circular in form, which shall contain the following inscription: Avtech Corporation - Corporate Seal 1963 - Washington. ARTICLE X. AMENDMENTS Section 1. These By-Laws or any thereof may be repealed or amended, or new By-Laws may be adopted, at any annual -8- meeting, or at any other meeting of the stockholders called for that purpose. The Board of Directors shall also have power to amend these By-Laws and to adopt new By-Laws. Section 2. All By-Laws adopted by the Board of Directors may be repealed or amended at the annual meeting or at any other meeting of the stockholders called for that purpose. -9- EX-3.6-1 10 EXHIBIT 3.6.1 Exhibit 3.6.1 ARTICLES OF INCORPORATION OF CORY COMPONENTS, INC. [STAMP] NAME One: The name of the corporation is: Cory Components, Inc. PURPOSE Two: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. AGENT FOR SERVICE Three: The name and address in the State of California of the corporation's initial agent for service of process is Lee Sacks, Esq., 9255 Sunset Boulevard, Suite 620, Los Angeles, California, 90069. AUTHORIZED SHARES Four: The total number of shares which this corporation is authorized to issue is one hundred thousand (100,000), all of the same class, designated "Common Stock." DATED: August 30, 1984 /s/ Lee Sacks ------------------------------ Lee Sacks I hereby declare that I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed. /s/ Lee Sacks ------------------------------ Lee Sacks CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CORY COMPONENTS, INC. [STAMP] Neal Castleman and Lee Sacks certify that: 1. They are the president and secretary, respectively, of Cory Components, Inc., a California corporation. 2. The Articles of Incorporation of this corporation are amended to add Article Five, to read as follows: "Five: The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders." 3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code by the holders of 100% of the outstanding stock. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. DATE: 5/24, 1988 ---- /s/ Neal Castleman -------------------------------------- Neal Castleman, President /s/ Lee Sacks -------------------------------------- Lee Sacks, Secretary - 2 - [SEAL] EX-3.6-2 11 EXHIBIT 3.6.2 Exhibit 3.6.2 BY-LAWS OF CORY COMPONENTS, INC. ------------------------ A CALIFORNIA CORPORATION ARTICLE I OFFICES ------- Section 1. PRINCIPAL OFFICE. The principal office for the transaction of business of the corporation is hereby fixed and located at 350 Hampton Street, City of Venice, County of Los Angeles, State of California. The location may be changed by approval of a majority of the authorized Directors, and additional offices may be established and maintained at such other place or places, either within or without California, as the Board of Directors may from time to time designate. Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be established by the Board of Directors at any place or places where the corporation is qualified to do business. ARTICLE II DIRECTORS - MANAGEMENT ---------------------- Section 1. RESPONSIBILITY OF BOARD OF DIRECTORS. Subject to the provisions of the General Corporation Law and to any limitations in the Articles of Incorporation of the corporation relating to action required to action required to be approved by the Shareholders, as that term is defined in Section 153 of the California Corporations Code, or by the outstanding shares, as that term is defined in Section 152 of the Code, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Section 2. STANDARD OF CARE. Each Director shall perform the duties of a Director, including the duties as a member of any committee of the Board upon which the Director may serve, in good faith, in a manner such Director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, as an ordinary prudent person in a like position would use similar circumstances. (Sec. 309) Section 3. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of Section 1, in the event that this corporation shall elect to become a close corporation as defined in Sec. 186, its Shareholders may enter into a Shareholders' Agreement as provided in Sec. 300(b). Said agreement may provide for the exercise of corporate powers and the management of the business and affairs of this corporation by the Shareholders, provided, however, such agreement shall, to the extent and so long as the discretion or the powers of the Board in its management of corporate affairs is controlled by such agreement, impose upon each Shareholder who is a party thereof, liability for managerial acts performed or omitted by such person pursuant thereto otherwise imposed upon Directors as provided in Sec. 300 (d). Section 4. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of Directors shall be three (3) until changed by a duly adopted amendment to the Articles of Incorporation or by an amendment to this by-law adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote, as provided in Sec. 212. Section 5. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the Shareholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. Section 6. VACANCIES. Vacancies in the Board of Directors may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, except that a vacancy created by the removal of a Director by the vote or written consent of the Shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each Director so elected shall hold office until the next annual meeting of the Shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any Director, or if the Board of Directors by resolution declares vacant the office of a Director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of Directors is increased, or if the shareholders fail, at any meeting of shareholders at which any Director or Directors are elected, to elect the number of Directors to be voted for at that meeting. -2- The Shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any Director may resign effective on giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a Director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorizing number of Directors shall have the effect of removing any Director before that Director's term of office expires. Section 7. REMOVAL OF DIRECTORS. The entire Board of Directors or any individual Director may be removed from office as provided by Secs. 302, 303 and 304 of the Corporations Code of the State of California. In such case, the remaining Board members may elect a successor Director to fill such vacancy for the remaining unexpired term of the Director so removed. Section 8. NOTICE, PLACE AND MANNER OF MEETINGS. Meetings of the Board of Directors may be called by the Chairman of the Board, or the President, or any Vice President, or the Secretary, or any two (2) Directors and shall be held at the principal executive office of the corporation, unless some other place is designated in the notice of the meeting. Members of the Board may participate in a meeting through use of a conference telephone or similar communications equipment so long as all members participating in such a meeting can hear one another. Accurate minutes of any meeting of the Board or any committee thereof, shall be maintained as required by Sec. 312 of the Code by the Secretary or other Officer designated for that purpose. Section 9. ORGANIZATION MEETINGS. The organization meetings of the Board of Directors shall be held immediately following the adjournment of the annual meetings of the Shareholders. Section 10. OTHER REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at the corporate offices, or such other place as may be designated by the Board of Directors, as follows: -3- Time of Regular Meeting: 4:00 p.m. Date of Regular Meeting: December 6 If said day shall fall upon a holiday, such meetings shall be held on the next succeeding business day thereafter. No notice need be given of such regular meetings. Section 11. SPECIAL MEETINGS - NOTICES _ WAIVERS. Special meetings of the Board may be called at any time by the President or, if he or she is absent or unable or refuses to act, by any Vice President or the Secretary or by any two (2) Directors, or by one (1) Director if only one is provided. At least forty-eight (48) hours notice of the time and place of special meetings shall be delivered personally to the Directors or personally communicated to them by a corporate Officer by telephone or telegraph. If the notice is sent to a Director by letter, it shall be addressed to him or her at his or her address as it is shown upon the records of the corporation, or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the Directors are regularly held. In case such notice is mailed, it shall be deposited in the United States mail, postage prepaid, in the place in which the principal executive office of the corporation is located at least four (4) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such Director. When all of the Directors are present at any Directors' meeting, however called or noticed, and either (i) sign a written consent thereto on the records of such meeting, or, (ii) if a majority of the Directors are present and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the Secretary of the corporation, or, (iii) if a Director attends a meeting without notice but without protesting, prior thereto or at its commencement, the lack of notice, then the transactions thereof are as valid as if had at a meeting regularly called and noticed. Section 12. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION OR BY-LAWS. In the event only one (1) Director is required by the By-Laws or Articles of Incorporation, then any reference herein to notices, waivers, consents, meetings or other actions by a majority or quorum of the Directors shall be deemed to refer to such notice, waiver, etc., by such sole Director, who shall have all the rights and duties and shall be entitled to exercise all of the powers and shall assume all the responsibilities otherwise herein described as given to a Board of Directors. -4- Section 13. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting and with the same force and effect as if taken by a unanimous vote of Directors, if authorized by a writing signed individually or collectively by all members of the Board. Such consent shall be filed with the regular minutes of the Board. Section 14. QUORUM. A majority of the number of Directors as fixed by the Articles of Incorporation or By-Laws shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the Directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the Directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of Directors, if any action taken is approved by a majority of the required quorum for such meeting. Section 15. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all Directors not present at the time of the adjournment. Section 16. COMPENSATION OF DIRECTORS. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board a fixed sum and expense of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board; provided that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. Section 17. COMMITTEES. Committees of the Board may be appointed by resolution passed by a majority of the whole Board. Committees shall be composed of two (2) or more members of the Board, and shall have such powers of the Board as may be expressly delegated to it by resolution of the Board of Directors, except those powers expressly made non-delegable by Sec. 311. Section 18. ADVISORY DIRECTORS. The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board. -5- Section 19. RESIGNATIONS. Any Director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. ARTICLE III OFFICERS -------- Section 1. OFFICERS. The Officers of the corporation shall be a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other Officers as may be appointed in accordance with the provisions of Section 3 of this Article III. Any number of offices may be held by the same person. Section 2. ELECTION. The Officers of the corporation, except such Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold office until he or she shall resign or shall be removed or otherwise disqualified to serve, or a successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS, ETC. The board of Directors may appoint such other Officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-Laws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an Officer under any contract of employment, any Officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting of the Board, or, except in case of an Officer chosen by the Board of Directors, by any Officer upon whom such power of removal may be conferred by the Board of Directors. Any Officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the Officer is a party. -6- Section 5. VACANCIES. A vacancy in an office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the ByLaws for regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned by the Board of Directors or prescribed by the By-Laws. If there is no President, the Chairman of the Board shall in addition be the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article III. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an Officer, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and Officers of the corporation. He or she shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. The President shall be ex officio a member of all the standing committees, including the executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-Laws. Section 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. -7- The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the Shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board of Directors required by the By-Laws or by law to be given. He or she shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, to cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any Director. This Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his or her transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-Laws. ARTICLE IV SHAREHOLDERS' MEETINGS ---------------------- Section 1. PLACE OF MEETINGS. All meetings of the Shareholders shall be held at the principal executive office of the corporation unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors. Section 2. ANNUAL MEETINGS. The annual meetings of the Shareholders shall be held, each year, at the time and on the day following: Time of Meeting: 3:00 p.m. Date of Meeting: December 6 -8- If this day shall be a legal holiday, then the meeting shall be held on the next succeeding business day, at the same hour. At the annual meeting, the Shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting. Section 3. SPECIAL MEETINGS. Special meetings of the Shareholders may be called at any time be the Board of Directors, the Chairman of the Board, the President, a Vice President, the Secretary, or by one or more of the Shareholders holding not less than one-tenth (1/10) of the voting power of the corporation. Except as next provided, notice shall be given as for the annual meeting. Upon receipt of a written request addressed to the Chairman, President, Vice President, or Secretary, mailed or delivered personally to such Officer by any person (other than the Board) entitled to call a special meeting of Shareholders, such Officer shall cause notice to be given, to the Shareholders entitled to vote, that a meeting will be at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of such request. If such notice is not given within twenty (20) days after receipt of such request, the persons calling the meeting may give notice thereof in the manner provided by these By-Laws or apply to the Superior Court as provided in Sec. 305 (c). Section 4. NOTICE OF MEETINGS -- REPORTS. Notice of meetings, annual or special, shall be given in writing not less than ten (10) nor more than sixty (60) days before the date of the meeting to Shareholders entitled to vote thereat. Such notice shall be given by the Secretary or the Assistant Secretary, or if there be no such Officer, or in the case of his or her neglect or refusal, by any Director or Shareholder. Such notices or any reports shall be given personally or by mail or other means of written communication as provided in Sec. 601 of the Code and shall be sent to the Shareholder's address appearing on the books of the corporation, or supplied by him or her to the corporation for the purpose of notice, and in the absence thereof, as provided in Sec .601 of the Code. Notice of any meeting of Shareholders shall specify the place, the day and the hour of meeting, and (1) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the Shareholders. At any meetings where Directors are to be elected, notice shall include the names of the nominees, if any, intended at the date of notice to be presented by management for election. -9- If a Shareholder supplies no address, notice shall be deemed to have been given if mailed to the place where the principal executive office of the corporation, in California, is situated, or published at least once in some newspaper of general circulation in the County of said principal office. Notice shall be deemed given at the time it is delivered personally or deposited in the mail or sent by other means of written communication. The Officer giving such notice or report shall prepare and file an affidavit or declaration thereof. When a meeting is adjourned for forty-five (45) days or more, notice of the adjourned meeting shall be given as in case of an original meeting. Save, as aforesaid, it shall not be necessary to give any notice of adjournment or of the business to be transacted at an adjourned meeting other than by announcement at the meeting at which such adjournment is taken. Section 5. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of Shareholders, however called and noticed, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the Shareholders entitled to vote, not present in person or by proxy, sign a written waiver of notice, or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance shall constitute a waiver of notice, unless objection shall be made as provided in Sec. 601 (e). Section 6. SHAREHOLDERS ACTING WITHOUT A MEETING -- DIRECTORS. Any action which may be taken at a meeting of the Shareholders, may be taken without a meeting or notice of meeting if authorized by a writing signed by all of the Shareholders entitled to vote at a meeting for such purpose, and filed with the Secretary of the corporation, provided, further, that while ordinarily Directors can only be elected by unanimous written consent under Sec. 603 (d), if the Directors fail to fill a vacancy, then a Director to fill that vacancy may be elected by the written consent of persons holding a majority of shares entitled to vote for the election of Directors. Section 7. OTHER ACTIONS WITHOUT A MEETING. Unless otherwise provided in the GCL or the Articles, any action which may be taken at any annual or special meeting of Shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, signed by the holders of outstanding shares having not less than the -10- minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all Shareholders entitled to vote have been solicited in writing, (1) Notice of any Shareholder approval pursuant to Secs. 310, 317, 1201 or 2007 without a meeting by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval, and (2) Prompt notice shall be given of the taking of any other corporate action approved by Shareholders without a meeting by less than unanimous written consent, to each of those Shareholders entitled to vote who have not consented in writing. Any Shareholder giving a written consent, or the Shareholder's proxyholders, or a transferee of the shares of a personal representative of the Shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 8. QUORUM. The holders of a majority of the shares entitled to vote thereat, present in person, or represented by proxy, shall constitute a quorum at all meetings of the Shareholders for the transaction of business except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the Shareholders, the Shareholders entitled to vote thereat, present in person, or by proxy, shall have the power to adjourn the meeting from time to time, until the requisite amount of voting shares shall be present. At such adjourned meeting at which the requisite amount of voting shares shall be represented, any business may be transacted which might have been transacted at a meeting as originally notified. If a quorum be initially present, the Shareholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough Shareholders to leave less than a quorum, if any action taken is approved by a majority of the Shareholders required to initially constitute a quorum. Section 9. VOTING. Only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day of any meeting of Shareholders, unless some other day be -11- fixed by the Board of Directors for the determination of Shareholders of record, and then on such other day, shall be entitled to vote at such meeting. Provided the candidate's name has been placed in nomination prior to the voting and one or more Shareholder has given notice at the meeting prior to the voting of the Shareholder's intent to cumulate the Shareholder's votes, every Shareholder entitled to vote at any election for Directors of any corporation for profit may cumulate their votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which his or her shares are entitled, or distribute his or her votes on the same principle among as many candidates as he or she thinks fit. The candidates receiving the highest number of votes up to the number of Directors to be elected are elected. The Board of Directors may fix a time in the future not exceeding thirty (30) days preceding the date of any meeting of Shareholders or the date fixed for the payment of any dividend or distribution, or for the allotment of rights, or when any change or conversion or exchange of shares shall go into effect, as a record date for the determination of the Shareholders entitled to notice of and to vote at any such meeting, or entitled to receive any such dividend or distribution, or any allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of shares. In such case only Shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting, or to receive such dividends, distribution or allotment of rights, or to exercise such rights, as the case may be notwithstanding any transfer of any share on the books of the corporation after any record date fixed as aforesaid. The Board of Directors may close the books of the corporation against transfers of shares during the whole or any part of such period. Section 10. PROXIES. Every Shareholder entitled to vote, or to execute consents, may do so, either in person or by written proxy, executed in accordance with the provisions of Secs. 604 and 705 of the Code and filed with the Secretary of the corporation. Section 11. ORGANIZATION. The President, or in the absence of the President, any Vice President, shall call the meeting of the Shareholders to order, and shall act as chairman of the meeting. In the absence of the President and all of the Vice Presidents, Shareholders shall appoint a chairman for such meeting. The Secretary of the corporation shall act as Secretary of all meetings of the Shareholders, but in the absence of the -12- Secretary at any meeting of the Shareholders, the presiding Officer may appoint any person to act as Secretary of the meeting. Section 12. INSPECTORS OF ELECTION. In advance of any meeting of Shareholders the Board of Directors may, if they so elect, appoint inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election be not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any such meeting may, and on the request of any Shareholder or his or her proxy shall, make such appointment at the meeting in which case the number of inspectors shall be either one (1) or three (3) as determined by a majority of the Shareholders represented at the meeting. Section 13. (A) SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions, in the event this corporation elects to become a close corporation, an agreement between two (2) or more Shareholders thereof, if in writing and signed by the parties thereof, may provide that in exercising any voting rights the shares held by them shall be voted as provided therein or in Sec. 706, and may otherwise modify these provisions as to Shareholders' meetings and actions. (B) EFFECT OF SHAREHOLDERS' AGREEMENTS. Any Shareholders' Agreement authorized by Sec. 300 (b), shall only be effective to modify the terms of these By-Laws if this corporation elects to become a close corporation with appropriate filing of or amendment to its Articles as required by Sec. 202 and shall terminate when this corporation ceases to be a close corporation. Such an agreement cannot waive or alter Secs. 150 (defining close corporations), 202 (requirements of Articles of Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201 (e) (reorganization) or Chapters 15 (Records and Reports), 16 (Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and Penalties). Any other provisions of the Code or these By-Laws may be altered or waived thereby, but to the extent they are not so altered or waived, these By-Laws shall be applicable. ARTICLE V CERTIFICATES AND TRANSFER OF SHARES Section 1. CERTIFICATES FOR SHARES. Certificates for shares shall be of such form and device as the Board of Directors may designate and shall state the name of the record holder of the shares represented thereby; its name; date of issuance; the number of shares for which it is issued; a statement of the rights, privileges, preferences and restrictions, if any; a statement as to the redemption or conversion, if any; a statement of liens or restrictions upon transfer or voting, if any; if the states be assessable or, if assessments are collectible by personal action, a plain statement of such facts. -13- All certificates shall be signed in the name of the corporation by the Chairman of the Board or Vice Chairman of the Board or the President or Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the Shareholder. Any or all of the signatures on the certificate may be facsimile. In case any Officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that Officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an Officer, transfer agent, or registrar at the date of issue. Section 2. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 3. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and shall, if the Directors so require, give the corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to be lost or destroyed. Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or transfer clerks, and one or more registrars, which shall be an incorporated bank or trust company, either domestic or foreign, who shall be appointed at such times and places as the requirements of the corporation may necessitate and the Board of Directors may designate. Section 5. CLOSING STOCK TRANSFER BOOKS -- RECORD DATE. In order that the corporation may determine the Shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect -14- of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. If no record date is fixed, the record date for determining Shareholders entitled to notice of or to vote at a meeting of Shareholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. The record date for determining Shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is given. The record date for determining Shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 6. LEGEND CONDITION. In the event any shares of this corporation are issued pursuant to a permit or exemption therefrom requiring the imposition of a legend condition, the person or persons issuing or transferring said shares shall make sure said legend appears on the certificate and shall not be required to transfer any shares free of such legend unless an amendment to such permit or a new permit be first issued so authorizing such a deletion. Section 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares of this corporation, in the event it shall elect to become a close corporation, shall contain the legend required by Sec. 418 (c). -15- Section 3. PROVISION OF RESTRICTING TRANSFER OF SHARES. Before there can be a valid sale or transfer of ??? of the shares of this corporation by the holders thereof, the number of the shares to be sold or transferred shall first give notice in writing to the Secretary of this corporation of his or her intention to sell or transfer such shares. Said notice shall specify the number of shares to be sold or transferred, the price per share and the terms upon which such holder intends to make such sale or transfer. The Secretary shall within five (5) days thereafter, mail or deliver a copy of said notice to each of the other Shareholders of record of this corporation. Such notice may be delivered to such Shareholders personally or may be mailed to the last known addresses of such Shareholders, as the same may appear on the books of this corporation. Within fifteen (15) days after the mailing or delivery of said notices to such Shareholders, any such Shareholder or Shareholders desiring to acquire any part or all of the shares referred to in said notice shall deliver by mail or otherwise to the Secretary of this corporation a written offer or offers to purchase a specified number or numbers of such shares at the price and upon the terms stated in said notice. If the total number of shares specified in such offers exceeds the number of shares referred to in said notice, each offering Shareholder shall be entitled to purchase such proportion of the shares referred to in said notice to the Secretary, as the number of shares of this corporation, which he or she holds, bears to the total number of shares held by all Shareholders desiring to purchase the shares referred to in said notice to the Secretary. If all of the shares referred to in said notice to the Secretary are not dispose of under such apportionment, each Shareholder desiring to purchase shares in a number in excess of his or her proportionate share, as provided above, shall be entitled to purchase such proportion of those shares which remain thus undisposed of, as the total number of shares which he or she holds bears to the total number of shares held by all of the Shareholders desiring to purchase shares in excess of those to which they are entitled under such apportionment. The aforesaid right to purchase the shares referred to in the aforesaid notice to the Secretary shall apply only if all of the shares referred to in said notice are purchased. Unless all of the shares referred to in said notice to the Secretary are purchased, as aforesaid, in accordance with offers made within said fifteen days, the Shareholder desiring to sell or transfer may dispose of all shares of stock referred to in said notice to the Secretary to any person or persons whomsoever; provided, however, that he or she shall not sell or transfer such shares at a lower price or on terms more favorable to the purchaser or transferee than those specified in said notice to Secretary. Any sale or transfer, or purported sale or transfer, of the shares of said corporation shall be null and void unless the terms, conditions and provisions of this section are strictly observed and followed. -15a- Section 8. PLEDGED OF HYPOTHECATED SHARES. Any Shareholder desiring to borrow money on or hypothecate any or all of the shares of stock held by such Shareholder shall first mail notice in writing to the Secretary of this corporation of his or her intention to do so. Said notice shall specify the number of shares to be pledged or hypothecated, the amount to be borrowed per share, the terms, rate of interest, and other provisions upon which each Shareholder intends to make such loan or hypothecation. The Secretary shall, within five (5) days thereafter, mail or deliver a copy of said notice to each of the other Shareholders of record of this corporation. Such notice may be delivered to such Shareholder personally, or may be mailed to the last known addresses of such Shareholders as the same may appear on the books of this corporation. Within fifteen (15) days after the mailing or delivering of said notice to said Shareholders, any such Shareholder or Shareholders desiring to lend any part or all of the amount sought to be borrowed, as set forth in said notice, at the terms therein specified, shall deliver by mail, or otherwise, to the Secretary of this corporation a written offer or offers to lend a certain amount of money for the term, at the rate of interest, and upon the other provisions specified in said notice. If the total amount of money subscribed in such offers exceeds the amount sought to be borrowed, specified in said notice, each offering Shareholder shall be entitled to lend such proportion of the amount sought to be borrowed, as set forth in said notice, as the number of shares which he or she holds bears to the total number of shares held by all such Shareholders desiring to lend all or part of the amount specified in said notice. If the entire amount of monies sought to be borrowed, as specified in said notice, is not subscribed as set forth in the preceding paragraphs, each Shareholder desiring to lend an amount in excess of his or her proportionate share, as specified in the preceding paragraph, shall be entitled to lend such proportion of the subscribed amount as the total number of shares which he or she holds bears to the total number of shares held by all of the Shareholders desiring to lend an amount in excess of that to which they are entitled under such apportionment. If there be but one Shareholder so desiring to lend, such Shareholder shall be entitled to lend up to the full amount sought to be borrowed. If none, or only a part of the amount sought to be borrowed, as specified in said notice, is subscribed as aforesaid, in accordance with offers made within said fifteen (15) day period, the Shareholder desiring to borrow may borrow from any person or persons he or she may so desire as to any or all shares of stock held by him or her which have not been covered by lending Shareholder; provided, however, that said Shareholders shall not borrow any lessor amount, or any amount on terms less favorable to the borrower, than those specified in said notice to the Secretary. Any pledge or hypothecation, or other purported transfer as security for a loan of the shares of this corporation, shall be null and void unless the terms, conditions and provisions of these By-Laws are strictly observed and followed. -15b- ARTICLE VI RECORDS - REPORTS - INSPECTION ------------------------------ Section 1. RECORDS. The corporation shall maintain, in accordance with generally accepted accounting principles, adequate and correct accounts, books and records of its business and properties. All of such books, records and accounts shall be kept at its principal executive office in the State of California, as fixed by the Board of Directors from time to time. Section 2. INSPECTION OF BOOKS AND RECORDS. All books and records provided for in Sec. 1500 shall be open to inspection of the Directors and Shareholders from time to time and in the manner provided in said Sec. 1600 - 1602. Section 3. CERTIFICATION AND INSPECTION OF BY-LAWS. The original or a copy of these By-Laws, as amended or otherwise altered to date, certified by the Secretary, shall be keep at the corporation's principal executive office and shall be open to inspection by the Shareholders of the corporation at all reasonable times during office hours, as provided in Sec. 213 of the Corporations Code. Section 4. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as shall be determined from time to time by resolution of the Board of Directors. Section 5. CONTRACTS, ETC. -- HOW EXECUTED. The Board of Directors, except as in the By-Laws otherwise provided, may authorize any Officer or Officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no Officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Sec. 313 of the Corporations Code. -16- ARTICLE VII ANNUAL REPORTS -------------- Section 1. REPORT TO SHAREHOLDERS, DUE DATE. The Board of Directors shall cause an annual reports to be sent to the Shareholders not later than one hundred twenty (120) days after the close of the fiscal or calendar year adopted by the corporation. This report shall be sent at lease fifteen (15) days before the annual meeting of Shareholders to be held during the next fiscal year and in the manner specified in Section 4 of Article IV of these By-Laws for giving notice to Shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report of independent accountants or, if there is no such report, the certificate of an authorized Officer of the corporation that the statements were prepared without audit from the books and records of the corporation. Section 2. WAIVER. The annual report to Shareholders referred to in Section 1501 of the California General Corporation Law is expressly dispensed with so long as this corporation shall have less than one hundred (100) Shareholders. However, nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the Shareholders of the corporation as they consider appropriate. ARTICLE VIII AMENDMENTS TO BY-LAWS --------------------- Section 1. AMENDMENT BY SHAREHOLDERS. New By-Laws may be adopted or these By-Laws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. Section 2. POWERS OF DIRECTORS. Subject to the right of the Shareholders to adopt, amend or repeal By-Laws, as provided in Section 1 of this Article VIII, and the limitations of Sec. 204 (a) (5) and Sec. 212, the Board of Directors may adopt, amend or repeal any of these By-Laws other than a By-Law or amendment thereof changing the authorized number of Directors. -17- Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is adopted, it shall be copied in the book of By-Laws with the original By-Laws, in the appropriate place. If any By-Law is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. ARTICLE IX CORPORATE SEAL -------------- The corporate seal shall be circular in form, and shall have inscribed thereon the name of the corporation, the date of its incorporation, and the word "California." ARTICLE I MISCELLANEOUS ------------- Section 1. REFERENCES TO CODE SECTIONS. "Sec." references herein refer to the equivalent Sections of the General Corporation Law effective January 1, 1977, as amended. Section 2. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other corporations standing in the name of this corporation may be voted or represented and all incidents thereto may be exercised on behalf of the corporation by the Chairman of the Board, the President or any Vice President and the Secretary or an Assistant Secretary. Section 3. SUBSIDIARY CORPORATIONS. Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one (1) or more subsidiaries. Section 4. INDEMNITY. The corporation may indemnify any Director, Officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Sec. 317 of the Code. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. Section 5. ACCOUNTING YEAR. The accounting year of the corporation shall be fixed by resolution of the Board of Directors. -18- EX-3.7-1 12 EXHIBIT 3.7.1 Exhibit 3.7.1 CERTIFICATE OF INCORPORATION OF DAHX ACQUISITION, INC. ***** 1. The name of the corporation is DAHX ACQUISITION, INC. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The total number of shares of stock which the corporation shall have authority to issue is one thousand (1000); all of such shares shall have no par value. The holders of the shares of stock shall, upon the issuance or sale of shares of stock of any class (whether now or hereafter authorized) or any securities convertible into such stock, have the right, during such period of time and on such conditions as the board of directors shall prescribe, to subscribe to and purchase such shares or securities in proportion to their respective holdings of stock, at such price or prices as the board of directors may from time to time fix and as may be permitted by law. 4. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS ---- --------------- M. A. Spencer Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 S. A. Clegg Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 G. D. Cooper Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801
6. The corporation is to have perpetual existence. 7. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to make, alter or repeal the bylaws of the corporation. 8. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of PAGE 1 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "DAHX ACQUISITION, INC.", CHANGING ITS NAME FROM "DAHX ACQUISITION, INC." TO "DETTMERS INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE THIRTIETH DAY OF JUNE, A.D. 1998, AT 5:05 O'CLOCK P.M. [SEAL] /s/ Edward J. Freel ----------------------------------- EDWARD J. FREEL, SECRETARY OF STATE AUTHENTICATION: 2907541 8100 9263741 DATE: 981327212 08-20-98 EX. 99.16 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION DAHX Acquisition, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of said corporation, by the unanimous written consent of its members, filed with the minutes of the Board, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of said corporation: RESOLVED, that the Certificate of Incorporation of DAHX Acquisition, Inc. be amended by changing the First Article thereof so that, as amended, said Article shall be and read as follows: The name of the corporation is Dettmers Industries, Inc. SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given unanimous written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. -1- IN WITNESS WHEREOF, said DAHX Acquisition, Inc. has caused this certificate to be signed by Robert A. Rankin, its Secretary, this Thirtieth day of June, 1998. DAHX Acquisition, Inc. By /s/ Robert Rankin ------------------------------------- Robert A. Rankin, Secretary -2- EX-3.7-2 13 EXHIBIT 3.7.2 Exhibit 3.7.2 BYLAWS OF DETTMERS INDUSTRIES, INC. ARTICLE 1 Offices Section 1.1 REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 1.2 OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE 2 Meetings of Stockholders Section 2.1 ANNUAL MEETINGS. Annual meetings of stockholders shall be held on a date set by the Board of Directors in each year for the purpose of electing directors and transacting such other proper business as may come before the meeting. Section 2.2 SPECIAL MEETINGS. Special meetings shall by held solely for the purpose or purposes specified in the notice of meeting. Section 2.3 TIME AND PLACE OF MEETINGS. Subject to the provisions of Section 2.1 each meeting of stockholders shall be held on such date, at such hour and at such place, either within or without the State of Delaware, as shall be fixed by the Board of Directors or in the notice of the meeting or, in the case of an adjourned meeting, as announced at the meeting at which the adjournment is taken. Section 2.4 NOTICE OF MEETINGS. A written notice of each meeting of stockholders, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given either personally or by mail to each stockholder entitled to vote at the meeting. Unless otherwise provided by statute, the notice shall be given not less than ten nor more than sixty days before the date of the meeting and, if mailed, shall be deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. No notice need be given to any person with whom communication is unlawful, nor shall there be any duty to apply for any permit or license to give notice to any such person. If the time and place of an adjourned meeting of stockholders are announced at the meeting at which the adjournment is taken, no notice need be given of the adjourned meeting unless that adjournment is for more than thirty days or unless, after the adjournment, a new record date is fixed for the adjourned meeting. Section 2.5 WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, notice of any meeting of stockholders need not be given to any stockholder who in person or by proxy shall have waived in writing notice of the meeting, either before or after such meeting, or who shall attend the meeting in person or by proxy, unless he attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Section 2.6 QUORUM AND MANNER OF ACTING. Subject to the provisions of these bylaws, the certificate of incorporation and statutes as to the vote that is required for a specified action, the presence in person or by proxy of the holders of 50% of the outstanding shares of the Corporation entitled to vote at any meeting of stockholders, plus one share, shall constitute a quorum for the transaction of business, and the vote in person or by proxy of the holders of a majority of the shares constituting such quorum shall be binding on all stockholders of the Corporation. A majority of the shares present in person or by proxy and entitled to vote may, regardless of whether or not they constitute a quorum, adjourn the meeting to another time and place. Any business which might have been transacted at the original meeting may be transacted at any adjourned meeting at which a quorum is present. Section 2.7 VOTING. Stockholders shall be entitled to cumulative voting at all elections of directors to the extent provided in or pursuant to the certificate of incorporation. Stockholders may vote by proxy but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 2.8 INSPECTION OF ELECTION. (a) The Board of Directors shall appoint an inspector of election to act at each meeting of stockholders and any adjournment thereof. If an inspector of election is not so appointed, or the person appointed as inspector fails or refuses to act, the chairman of the meeting shall appoint an inspector of election. 2 (b) The inspector of election shall determine the outstanding stock of the Corporation and the voting power of each class and series, the stock represented at the meeting and the existence of a quorum, shall receive votes or ballots, shall count and tabulate all votes and shall determine the result; and in connection therewith, the inspector shall determine the authority, validity and effect of proxies, hear and determine all challenges and questions, and do such other acts as may be proper to conduct the election or vote with fairness to all stockholders. (c) The inspector of election shall make a report in writing of any challenge or question or other matter determined by him and shall execute a certificate of any fact found in connection therewith. Any such report or certificate shall be filed with the record of the meeting. Section 2.9 LIST OF STOCKHOLDERS. A complete list of the stockholders entitled to vote at each meeting of stockholders, arranged in alphabetical order, and showing the address and number of shares registered in the name of each stockholder, shall be prepared and made available for examination during regular business hours by any stockholder for any purpose germane to the meeting. The list shall be available for such examination at the place where the meeting is to be held for a period of not less than ten days prior to the meeting and during the whole time of the meeting. Section 2.10 ACTION WITHOUT A MEETING. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. ARTICLE 3 Board of Directors Section 3.1 NUMBER. The number of directors shall be no less than one and no more than five, and shall be set by the Board of Directors by adoption of a resolution with respect thereto. Section 3.2 ORGANIZATION MEETINGS. As promptly as practicable after each annual meeting of stockholders, an organization meeting of the Board of Directors shall be held for 3 the purpose of organization and the transaction of other business. Section 3.3 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such place and time as may be designated by the Board. Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman, the President, any three directors, or, if less than three, the remaining directors. Section 3.5 BUSINESS OF MEETINGS. Except as otherwise expressly provided in these bylaws, any and all business may be transacted at any meeting of the Board of Directors; PROVIDED, that if so stated in the notice of meeting, the business transacted at a special meeting shall be limited to the purpose or purposes specified in the notice. Section 3.6 TIME AND PLACE OF MEETINGS. Subject to the provisions of Section 3.4 each meeting of the Board of Directors shall be held on such date, at such hour and in such place as fixed by the Board or in the notice or waivers of notice of the meeting or, in the case of an adjourned meeting, as announced at the meeting at which the adjournment is taken. Section 3.7 NOTICE OF MEETINGS. No notice need be given of any organization or regular meeting of the Board of Directors for which the date, hour and place have been fixed by the Board. Notice of the date, hour and place of all other organization and regular meetings, and of all special meetings, shall be given to each director personally, by telephone or telegraph or by mail. If by mail, the notice shall be deposited in the United States mail, postage prepaid, directed to the director at his residence or usual place of business as the same appear on the books of the Corporation not later than five days before the meeting. If given by telegraph, the notice shall be directed to the director at his residence or usual place of business as the same appear on the books of the Corporation not later than at any time during the day before the meeting. If given personally or by telephone, the notice shall be given not later than the day before the meeting. Section 3.8 WAIVER OF NOTICE. Anything herein to the contrary notwithstanding, notice of any meeting of the Board of Directors need not be given to any director who shall have waived in writing notice of the meeting, either before or after the meeting, or who shall attend such meeting, unless he attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 4 Section 3.9 ATTENDANCE BY TELEPHONE. Directors may participate in meetings of the Board of Directors by means of conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear one another, and such participation shall constitute presence in person in the meeting. Section 3.10 QUORUM AND MANNER OF ACTING. A majority of the total number of directors at the time provided for pursuant to Section 3.1 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors and, except as otherwise provided in these bylaws, in the certificate of incorporation or by statute, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. A majority of the directors present at any meeting, regardless of whether or not they constitute a quorum, may adjourn the meeting to another time or place. Any business which might have been transacted at the original meeting may be transacted at any adjourned meeting at which a quorum is present. Section 3.11 ACTION WITHOUT A MEETING. Any action which could be taken at a meeting of the Board of Directors may be taken without a meeting if all of the directors consent to the action in writing and the writing or writings are filed with the minutes of the Board. Section 3.12 RESIGNATION OF DIRECTORS. Any director may resign at any time upon written notice to the Corporation. The resignation shall become effective at the time specified in the notice and, unless otherwise provided in the notice, acceptance of the resignation shall not be necessary to make it effective. Section 3.13 VACANCIES AND REMOVAL. Vacancies in the Board of Directors, except vacancies created by removal of a director by the shareholders, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until a successor is elected at an annual or a special meeting of the shareholders in accordance with these Bylaws. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders may elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 5 A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased, or if the shareholders fail at any annual or special meeting of shareholders at which any director or directors are elected to elect the full authorized number of directors to be voted for at that meeting. The Board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. All the directors, or any individual director or directors, may be removed from office, without cause, by the vote of the shareholders having a majority of the voting power entitling them to elect directors in place of those to be removed. ARTICLE 4 Committees of the Board of Directors Section 4.1 EXECUTIVE COMMITTEE. By resolution adopted by an affirmative vote of the majority of the whole Board of Directors, the Board may appoint an Executive Committee consisting of the chief executive officer of the Corporation, EX OFFICIO, and two or more other directors and, if deemed desirable, one or more directors as alternate members who may replace any absentee or disqualified member at any meeting of the Executive Committee. If so appointed, the Executive Committee shall, when the Board is not in session, have all the power and authority of the Board in the management of the business and affairs of the Corporation not reserved to the Board by Section 4.3 including, but not limited to, the power and authority to declare dividends, to authorize the issuance of stock and to adopt a certificate of ownership and merger. The Executive Committee shall keep a record of its acts and proceedings and shall report the same from time to time to the Board of Directors. Section 4.2 OTHER COMMITTEES. By resolution adopted by an affirmative vote of the majority of the whole Board of Directors, the Board may from time to time appoint such other committees of the Board, consisting of one or more directors and, if deemed desirable, one or more directors who shall act as alternate members and who may replace any absentee or disqualified member at any meeting of the committee, and may delegate to each such committee any of the powers and authority of the Board in the management of the business and affairs of the Corporation not reserved to the Board pursuant to Section 4.3. Each such committee shall keep a record of its acts and proceedings. 6 Section 4.3 POWERS RESERVED TO THE BOARD. No committee of the Board shall take any action to amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation) or these bylaws, adopt any agreement to merge or consolidate the Corporation, or recommend to the stockholders a sale, lease or exchange of all or substantially all of the property and assets of the Corporation, a dissolution of the Corporation or a revocation of a dissolution of the Corporation; nor shall any committee of the Board take any action which is required in these bylaws, in the certificate of incorporation or by statute to be taken by a vote of a specified proportion of the whole Board of Directors. Section 4.4 ELECTION OF COMMITTEE MEMBERS; VACANCIES. So far as practicable, members of the committees of the Board and their alternates (if any) shall be appointed at each organization meeting of the Board of Directors and, unless sooner discharged by an affirmative vote of the majority of the whole Board, shall hold office until the next organization meeting of the Board and until their respective successors are appointed. In the absence or disqualification of any member of a committee of the Board, the member or members (including alternates) present at any meeting of the committee and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at a meeting in place of any absent or disqualified member. Vacancies in committees of the Board created by death, resignation or removal may be filled by an affirmative vote of a majority of the whole Board of Directors. Section 4.5 MEETINGS. Each committee of the Board may provide for regular meetings of such committee. Special meetings of each committee may be called by any two members of the committee (or, if there is only one member, by that member in concert with the chief executive officer) or by the chief executive officer of the Corporation. The provisions of Section 3 regarding the business, time and place, notice and waivers of notice of meetings, attendance at meetings and action without a meeting shall apply to each committee of the Board, except that the references in such provisions to the directors and the Board of Directors shall be deemed respectively to be references to the members of the committee and to the committee. Section 4.6 QUORUM AND MANNER OF ACTING. A majority of the members of any committee of the Board shall constitute a quorum 7 for the transaction of business at meetings of the committee, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the committee. A majority of the members present at any meeting, regardless of whether or not they constitute a quorum, may adjourn the meeting to another time or place. Any business which might have been transacted at the original meeting may be transacted at any adjourned meeting at which a quorum is present. ARTICLE 5 Officers Section 5.1 ELECTION AND APPOINTMENT. The elected officers of the Corporation shall consist of a Chief Executive Officer, one or more Vice Presidents, a Treasurer, a Secretary and such other elected officers as shall from time to time be designated by the Board of Directors. The Board shall designate from among such elected officers a chief executive officer and a chief financial officer of the Corporation, and may from time to time make, or provide for, other designations it deems appropriate. The Board may also appoint, or provide for the appointment of, such other officers and agents as may from time to time appear necessary or advisable in the conduct of the affairs of the Corporation. Any number of offices may be held by the same person, except no person may at the same time be both the Chief Executive Officer and the chief financial officer. Section 5.2 DUTIES OF CHIEF EXECUTIVE OFFICER. The chief executive officer of the Corporation shall preside at all meetings of stockholders and (unless the Board of Directors elects a separate Chairman) at all meetings of the Board of Directors and the Executive Committee and, except to the extent otherwise provided in these bylaws or by the Board, shall have general authority to execute any and all documents in the name of the Corporation and general and active supervision and control of all of the business and affairs of the Corporation. In the absence of the chief executive officer, his duties shall be performed and his powers may be exercised by the chief financial officer or by such other officer as shall be designated either by the chief executive officer in writing or (failing such designation) by the Executive Committee or Board of Directors. Section 5.3 DUTIES OF OTHER OFFICERS. The other officers of the Corporation shall have such powers and duties not inconsistent with these bylaws as may from time to time be conferred upon them in or pursuant to resolutions of the Board of Directors, and shall have such additional powers and duties not inconsistent with such resolutions as may from time to time be assigned to them by any competent superior officer. The Board shall assign to one or more of the officers of the Corporation the duty to record the proceedings of the meetings of the 8 stockholders and the Board of Directors in a book to be kept for that purpose. Section 5.4 TERM OF OFFICE AND VACANCY. So far as practicable, the elected officers shall be elected at each organization meeting of the Board, and shall hold office until the next organization meeting of the Board and until their respective successors are elected and qualified. If a vacancy shall occur in any elected office, the Board of Directors may elect a successor for the remainder of the term. Appointed officers shall hold office at the pleasure of the Board. Any officer may resign by written notice to the Corporation. Section 5.5 REMOVAL OF ELECTED OFFICERS. Elected officers may be removed at any time, either for or without cause, by the affirmative vote of a majority of the whole Board of Directors at a meeting called for that purpose. Section 5.6 COMPENSATION OF ELECTED OFFICERS. The compensation of all elected officers of the Corporation shall be fixed from time to time by the Board of Directors. ARTICLE 6 Shares and Transfer of Shares Section 6.1 CERTIFICATES. Every stockholder shall be entitled to a certificate signed by the Chairman or Vice Chairman of the Board of Directors, or the Chief Executive Officer or the President, and by the Chief Financial Officer or the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the class and number of shares owned by him in the Corporation; PROVIDED that, any and all signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or it were such officer, transfer agent or registrar at the date of issue. Section 6.2 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may, in its discretion, appoint one or more responsible banks or trust companies in the City of New York or in such other city or cities (if any) as the Board may deem advisable, from time to time, to act as transfer agents and registrars of shares of the Corporation; and, when such appointments shall have been made, no certificate for shares of the Corporation shall be valid until countersigned by one of such transfer agents and registered by one of such registrars. 9 Section 6.3 TRANSFERS OF SHARES. Shares of the Corporation may be transferred by delivery of the certificates therefor, accompanied either by an assignment in writing on the back of the certificates or by written power of attorney to sell, assign and transfer the same, signed by the record holder thereof; but no transfer shall affect the right of the Corporation to pay any dividend upon the shares to the holder of record thereof, or to treat the holder of record as the holder in fact thereof for all purposes, and no transfer shall be valid, except between the parties thereto, until such transfer shall have been made upon the books of the Corporation. Section 6.4 LOST CERTIFICATES. In case any certificate for shares of the Corporation shall be lost, stolen or destroyed, the Board of Directors, in its discretion, or any transfer agent thereunto duly authorized by the Board, may authorize the issue of a substitute certificate in place of the certificate so lost, stolen or destroyed, and may cause such substitute certificate to be countersigned by the appropriate transfer agent (if any) and registered by the appropriate registrar (if any); PROVIDED that, in each such case, the applicant for a substitute certificate shall furnish to the Corporation and to such of its transfer agents and registrars as may require the same, evidence to their satisfaction, in their discretion, of the loss, theft or destruction of such certificate and of the ownership thereof, and also such security or indemnity as may by them be required. Section 6.5 RECORD DATES. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or to express consent to action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of shares or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date which shall be not more than sixty nor less than ten days before the date of any meeting of stockholders, and not more than sixty days prior to any other action. In such case, those stockholders, and only those stockholders, who are stockholders of record on the date fixed by the Board of Directors shall, notwithstanding any subsequent transfer of shares on the books of the Corporation, be entitled to notice of and to vote at such meeting of stockholders, or any adjournment thereof, or to express consent to such corporate action in writing without a meeting, or entitled to receive payment of such dividend or other distribution or allotment of rights, or entitled to exercise rights in respect of any such change, conversion or exchange of shares or to participate in any such other lawful action. 10 ARTICLE 7 Miscellaneous Section 7.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 7.2 SIGNATURE ON NEGOTIABLE INSTRUMENTS. All bills, notes, checks or other instruments for the payment of money shall be signed or countersigned in such manner as from time to time may be prescribed by resolution of the Board of Directors. Section 7.3 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND FIDUCIARIES; INSURANCE. (a) The Corporation may indemnify, in accordance with and to the full extent permitted by the laws of the State of Delaware, as such laws may be amended from time to time, and shall so indemnify to the full extent permitted by such laws, any person (and the heirs and legal representatives of any such person) made or threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is or was a director, officer, employee, agent, or fiduciary of the Corporation or any constituent corporation absorbed in a consolidation or merger, or serves or served as such with another corporation, partnership, joint venture, trust or other enterprise at the request of the Corporation or any such constituent corporation. (b) By action of the Board of Directors notwithstanding any interest of the directors in such action, the Corporation may purchase and maintain insurance in such amounts as the Board of Directors deems appropriate on behalf of any person who is or was a director, officer, employee, agent or fiduciary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation shall have power to indemnify him against such liability under the provisions of this Section. 11 ARTICLE 8 Bylaw Amendments Section 8.1 BY THE STOCKHOLDERS. These bylaws may be amended by the stockholders at a meeting called for the purpose in any manner not inconsistent with any provision of law or of the certificate of incorporation. Section 8.2 BY THE DIRECTORS. These bylaws may be amended by the affirmative vote of a majority of the whole Board of Directors in any manner not inconsistent with any provision of law or of the certificate of incorporation. 12 EX-3.8-1 14 EXHIBIT 3.8.1 Exhibit 3.8.1 RESTATED ARTICLES OF INCORPORATION OF ELSINORE AEROSPACE SERVICES, INC. a California corporation [STAMP] DAVID A. BANMILLER and BARBARA CLARK certify that: 1. They are the duly elected and acting chairman of the board and secretary, respectively, of said corporation. 2. The articles of incorporation of this corporation are amended and restated to read as follows: ONE: The name of this corporation is Elsinore Aerospace Services, Inc. TWO: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THREE: This corporation is authorized to issue one class of shares of stock; the total number of said shares is one thousand (1,000). Upon the effective date hereof, each outstanding share of Class A stock and Class B stock is converted into or reconstituted as 1/300 of a share of common stock. FOUR: The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. FIVE: This corporation is authorized to indemnify the directors and officers of this corporation to the fullest extent permissible under California law. 3. The foregoing restated articles of incorporation have been approved by the Board of Directors of said corporation. 4. The foregoing restated articles of incorporation were approved by the required vote of the shareholders of said corporation in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of Class A stock of the corporation is 150,000 and the total number of outstanding shares of Class B stock of the corporation is 150,000. The number of Class A shares and Class B shares voting in favor of the restatement of the articles of incorporation was 150,000 of the Class A shares and 150,000 of the Class B shares, which equaled or exceeded the vote required. I further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of my own knowledge. Dated: June 6, 1990 /s/ David A. Banmiller ----------------------------------- DAVID A. BANMILLER, Chairman /s/ Barbara Clark ----------------------------------- BARBARA CLARK, Secretary -2- EX-3.8-2 15 EXHIBIT 3.8.2 Exhibit 3.8.2 BYLAWS OF ELSINORE AEROSPACE SERVICES, INC. ARTICLE I OFFICES Section 1. PRINCIPAL OFFICES. The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside this state, and the corporation has one or more business offices in this state, the board of directors shall fix and designate a principal business office in the State of California. Section 2. OTHER OFFICES. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. At each annual meeting directors shall be elected, and any other proper business may be transacted. Section 3. SPECIAL MEETING. A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 4 and 5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Sectin 310 of the Corporations Code of California, 2 (ii) an amendment of the articles of incorporation, pursuant to Section 902 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of that Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of that Code, the notice shall also state the general nature of that proposal. Section 5. MANNER OF GIVING NOTICE, AFFIDAVIT OF NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation. Section 6. QUORUM. The presence in person or by proxy 3 of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 6 of this Article II. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case the board of directors shall set a new record date. Notice of any such adjourned meeting, if required, shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 4 and 5 of this Article II. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. Section 8. VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Sections 702 to 704, inclusive, of the Corporations Code of California (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than elections of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to 4 specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote and voting on any matter (other than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by California General Corporation Law or by the articles of incorporation. At a shareholders' meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) unless the candidates' names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, than every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected. Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, comments or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 5 Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting. Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the selection of directors; provided, however, that a director may be elected at any time to fill a vacancy on the board of directors that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. This notice shall be given in the manner specified in Section 5 of this Article II. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California, (ii) indemnification of agents of the corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in dissolution either than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of 6 that Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING CONSENTS. For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in this event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the California General Corporation Law. If the board of directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders entitled to give consent to corporation action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. Section 12. PROXIES. Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriter, telegraphic transmission, or otherwise) by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a 7 writing delivered to the corporation stating the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Corporations Code of California. Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders, the board of directors may appoint any person other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors shall be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) Receive votes, ballots, or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and 8 (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. If there are three inspectors, the decision of a majority shall be effective in all respects as the decision of all. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the provisions of the California General Corporation Law and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Without prejudice to these general powers, and subject to the same limitations, the directors shall have the power to: (a) Select and remove all officers, agents, and employees of the corporation; prescribe any powers and duties for them that are consistent with law, with the articles of incorporation, and with these byLaws; fix their compensation; and require from them security for faithful service. (b) Change the principal executive office or the principal business office in the State of California from one location to another; cause the corporation to be qualified to do business in any other state, territory, dependency, or country and conduct business within or without the State of California; and designate any place within or without the State of California for the holding of any shareholders' meeting, or meetings, including annual meetings. (c) Adopt, make, and use a corporate seal; prescribe the forms of certificates of stock; and alter the form of the seal and certificates. (d) Authorize the issuance of shares of stock of the corporation on any lawful terms, in consideration of money paid, labor done, services actually rendered, debts or securities cancelled, or tangible or intangible property actually received. 9 (e) Borrow money and incur indebtedness on behalf of the corporation, and cause to be executed and delivered for the corporation's purposes, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities. Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number of directors shall be three (3) until changed by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote. Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. Section 4. VACANCIES. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a duly held meeting at which a quorum is present, or by the written consent of holders of a majority of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist in the event of the death, resignation, or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the shareholders 10 fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board shall be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting. Section 6. ANNUAL MEETING. Immediately following each annual meeting of the shareholders, the board of directors shall hold a regular meeting for the purpose of organization, any desired election of officers, and the transaction of other business. Notice of this meeting shall not be required. Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board of directors shall be held without call at such time as shall from time to time be fixed by 11 the board of directors. Such regular meetings may be held without notice. Section 8. SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. Section 9. QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 11 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Corporation Code of California (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of that Code (as to appointment of committees), and Section 317(e) of that Code (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. Section 10. WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and 12 noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting before or at its commencement, the lack of notice to that director. Section 11. ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 8 of this Article III, to the directors who were not present at the time of the adjournment. Section 13. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. This Section 14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. ARTICLE IV COMMITTEES Section 1. COMMITTEES OF DIRECTORS. The board of 13 directors may, by resolution adopted by a majority of the authorised number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may, by a vote of a majority of the authorized number of directors, appoint members to such committees, and may appoint alternate members who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the General Corporation Law of California, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of these committees. Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Sections 9 (place of meetings), 7 (regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of notice), 11 (adjournment), 12 (notice of adjournment), and 13 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special 14 meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. Any number of offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article V, shall be chosen annually by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. Section 3. SUBORDINATE OFFICERS. The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the board of directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting of the board, or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect 15 at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the bylaws. If there is no president, the chairman of the board shall in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or the bylaws. Section 8. VICE PRESIDENTS. In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or the bylaws, and the president, or the chairman of the board. 16 Section 9. SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by the bylaws or by law to be given, and he shall keep the seal of the corporation if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws. Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or the bylaws. 17 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of this Article, "agent" means any person who is or was a director, officer, employee, or other agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of this corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 4 in any proceeding or arbitration authorized in the manner provided in Section 5 of this Article. Section 2. ACTIONS OTHER THAN BY THE CORPORATION. This corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation to procure a judgment in its favor) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of that person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. Section 3. ACTIONS BY THE CORPORATION. This corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this corporation to procure a judgment in its favor by reason of 18 the fact that that person is or was an agent of this corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of this corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this Section 3: (a) In respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to this corporation in the performance of that person's duty to this corporation, unless and only to the extent that the court in which that proceeding is brought shall determine upon application that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; (b) Of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or (c) Of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval. Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this corporation has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article, or in the defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of this Article, any indemnification under this Article shall be made by this corporation only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article, by: (a) A majority vote of a quorum consisting of directors who are not parties to the proceeding; (b) Approval by the affirmative vote of a majority of the shares of this corporation entitled to vote and voting, which shares voting affirmatively also constitute at least a majority of the required quorum, represented at a duly held 19 meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For this purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or (c) The court in which the proceeding is or was pending, on application made by this corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this corporation. Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any proceeding may be advanced by this corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article. Section 7. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article shall affect any right to indemnification to which persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise. Section 8. LIMITATIONS. No indemnifications or advance shall be made under this Article, except as provided in Section 4 or Section 5(c), in any circumstance where it appears: (a) That it would be inconsistent with a provision of the articles, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 9. INSURANCE. Upon and in the event of a determination by the board of directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this section. Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. This Article does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an 20 employee benefit plan in that person's capacity as such, even though that person may also be an agent of the corporation as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article. The corporation shall have power to indemnify such a trustee, instrument manager or other fiduciary to the extent permitted by subdivision (f) of Section 207 of the Corporations Code of California. ARTICLE VII RECORDS AND REPORTS Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation may (i) inspect and copy the records of shareholders' names and addresses and shareholders during usual business hours on five days' prior written demand on the corporation, and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the shareholders' names and addresses, who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. This list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The 21 corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in this state, the Secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the bylaws as amended to date. Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary corporation of the corporation. Section 4. INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to shareholders referred to in Section 1501 of the California General Corporation Law is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the shareholders of the corporation as they consider appropriate. 22 Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for twelve (12) months and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and a balance sheet of the corporation as of the end of that period, the chief financial officer shall cause that statement and balance sheet to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements and balance sheet to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The corporation shall also, on the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual, or quarterly income statement which it has prepared, and a balance sheet as of the end of that period. The income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation shall within the time periods specified in Section 1502 of the Corporations Code of California file with the Secretary of State of the State of California, on 23 the prescribed form, a statement setting forth the authorized number of directors, the names and complete business or residence addresses of all incumbent directors, the names and complete business or residence addresses of the chief executive officer, secretary, and chief financial officer, the street address of its principal executive office or principal business office in this state, and the general type of business constituting the principal business activity of the corporation, together with a designation of the agent of the corporation for the purpose of service of process, all in compliance with Section 1502 of the Corporations Code of California. ARTICLE III GENERAL CORPORATE MATTERS Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action, and in that case only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the California General Corporation Law. If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. 24 Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for shares of the capital stock of the corporation shall be issued to each shareholder when any of these shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue. Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen, or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft, or destruction of the certificates or the issuance of the replacement certificate. 25 Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the president, or any vice president, or any other person authorized by resolution of the board of directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote or represent on behalf of the corporation any and all shares held by the corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers. Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation. Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 1 of this Article IX, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors, may be adopted, amended, or repealed by the board of directors. ARTICLE X OTHER PROVISIONS Section 1. EXCESSIVE COMPENSATION. If the Internal Revenue Service disallows as a business deduction to the corporation any part of the salary or other compensation paid by it to any officer, director, or employee, as being excessive compensation, that part disallowed shall be repaid to the corporation by the officer, director, or employee. 26 EX-3.9-1 16 EXHIBIT 3.9.1 Exhibit 3.9.1 CERTIFICATE OF INCORPORATION OF EE ACQUISITION, INC. * * * * * 1. The name of the corporation is EE Acquisition, Inc.. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the corporation shall have authority to issue is Seven Hundred Fifty (750); all of such shares shall be without par value. 5. The name and mailing address of the incorporator is as follows: NAME MAILING ADDRESS ---- --------------- T. L. Ford Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 6. The board of directors is authorized to make, alter or repeal the by-laws of the corporation. Election of directors need not be by written ballot. I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this Certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this Seventh day of November, 1996. /s/ T. L. Ford ---------------------------------------- T. L. Ford CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF EE ACQUISITION, INC. ------------ EE Acquisition, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY THAT: 1. EE Acquisition, Inc. (hereinafter referred to as the "Corporation") was originally incorporated in the State of Delaware on November 7, 1996. 2. By written consent of the Board of Directors and stockholders of the Corporation, this Certificate of Amendment of Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 141, 228 and 241 of the General Corporation Law of Delaware. 3. Article 1 of the Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety as follows: 1. The name of the corporation is Elsinore Engineering, Inc. 4. The capital of the Corporation shall not be reduced under or by reason of said amendment. 1 5. In accordance with the provisions of Section 104 of the General Corporation Law of the State of Delaware, this Certificate of Amendment shall become effective upon its filing date. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of Certificate of Incorporation to be signed in its name and attested by its duly authorized officer, this 24th day of December, 1996. EE ACQUISITION, INC. By: /s/ R.G. MacDonald -------------------------------- R.G. MacDonald, President ATTEST By: /s/ Robert Rankin ------------------------------ Robert Rankin, Secretary 2 EX-3.9-2 17 EXHIBIT 3.9.2 Exhibit 3.9.2 BYLAWS OF EE ACQUISITION, INC. A DELAWARE CORPORATION ARTICLE I CORPORATE OFFICES Section 1. REGISTERED OFFICE. The registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. Section 2. PRINCIPAL OFFICE. The principal office of the Corporation is hereby located at: Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The Board of Directors (herein referred to as the "Board") is hereby granted the full power and authority, by a resolution of a majority of the directors, to change the principal office from one location to another. Any such change shall be noted in these Bylaws opposite this section, and this section may be amended to state the new location. Section 3. OTHER OFFICES. The Corporation may establish any additional offices, at any place or places, as the Board may designate, or as the business of the Corporation shall require. ARTICLE II STOCKHOLDERS MEETINGS Section 1. PLACE OF MEETING. Meetings of the Stockholders of the Corporation shall be held at the principal office or at such place, within or without the State of Delaware, as may from time to time be designated for that purpose either by the Board or by the written consent of all persons entitled to vote thereat and not present at the meeting, given either before or after the meeting and filed with the Secretary of the Corporation. Section 2. ANNUAL MEETINGS. The annual meeting of the Stockholders shall be held on such date and at such time designated, from time to time, by resolution of the Board, or, in the absence of such designation, on the 31st day of March at 10:00 a.m., eastern time; provided, however, that if such day is a legal holiday, then at the same time and place on the next day thereafter which is a full business day. Section 3. SPECIAL MEETINGS. Special meetings of the Stockholders for the purpose of taking any action which the Stockholders are permitted to take under the General Corporation Law of the State of Delaware (herein, as the same may from time to time be amended, referred to as the "General Corporation Law") may be called at any time by the Chief Executive Officer, or the President, or the Board. 1 Section 4. NOTICE OF MEETINGS. Except as otherwise provided by statute, written or printed notice of each meeting of the Stockholders of the Corporation, whether annual or special, shall be given not less than ten nor more than sixty days prior to the date upon which the meeting is to be held to each stockholder entitled to vote at such meeting by leaving such notice with him personally at, or by transmitting such notice with confirmed delivery (including telex, telegraph, cable or other form of recorded communication, provided that delivery of such notice in written form is confirmed in a writing) to, his residence or usual place of business. If mailed, such notice shall be deemed delivered when deposited in the United States mail in a sealed envelope addressed to the stockholder at his address as it appears on the stock records of the Corporation, with postage thereon prepaid. Such notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken and, at the adjourned meeting, such business may be transacted as might properly have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting. Notice of a Stockholders' meeting or adjournment thereof is waived upon the occurrence of the following: (a) A Stockholders' meeting is adjourned and a time and place for readjournment is announced at the meeting at which the adjournment is taken, and such date of readjustment is no more than 30 days from the date of adjournment. (b) Receipt by the Corporation of a written notice of waiver, signed by the person entitled to notice before or after the time stated therein. (c) Attendance by the person entitled to notice and failure of such person to object to the transaction of any business because the meeting is not lawfully called or convened. Whenever notice is required to be given under any statute or the Certificate of Incorporation or these Bylaws to any Stockholder to whom (a) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings or (b) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve month period, have been mailed addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable, the giving of notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the Corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any of the other sections of the General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this Section 4. 2 Section 5. QUORUM. On all questions, the presence of the holders of a majority of the shares entitled to vote, in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the Stockholders. On all questions, the Stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough Stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Section 6. ADJOURNED MEETING. Any Stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned by vote of a majority of the shares present, either in person or by proxy, but in the absence of a quorum no other business may be transacted at such meeting, except as expressly provided in Section 5 of this Article. Section 7. VOTING. (a) The Stockholders entitled to notice of any meeting or to vote at such meeting shall only be persons whose names stand on the stock records of the Corporation on the record date determined in accordance with the provisions of Section 12 of this Article, provided, however, that if no such record date shall be fixed by the Board, only persons in whose names shares stand on the stock records of the corporation at the close of business on the business day next preceding the day on which notice of the meeting is given or if such notice is waived, at the close of business on the business day next preceding the day on which the meeting of Stockholders is held, shall be entitled to vote at such meeting, and such day shall be the record date for such meeting. (b) Voting shall in all cases be subject to the provisions of Sections 217 and 218 of the Delaware Corporation law (relating to voting of shares held by fiduciaries, or pledges, held in joint ownership, and voting of shares by voting trusts or in accordance with other voting agreements). (c) At each meeting of the stockholders of the Corporation, holders of a majority of the voting power of the Corporation entitled to vote thereat, present either in person or by proxy, shall constitute a quorum for the transaction of business. In the absence of quorum, the Stockholders of the Corporation present in person or by proxy and entitled to vote at the meeting may, by majority vote, or, in the absence of all Stockholders, any officer entitled to preside or act as Secretary at such meeting, shall have the power to adjourn the meeting from time to time until Stockholders holding the requisite amount of stock shall be present in person or by proxy. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. (d) On all questions, other than election of directors, each Stockholder of the Corporation entitled to vote on such questions shall be entitled to vote in person or by proxy one vote for each share of Common Stock of the Corporation held by such Stockholder. Unless otherwise provided in the Certificate of Incorporation or by statute, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present shall be the act of the Stockholders. Unless demanded by a Stockholder present in person or by proxy at any meeting and entitled to vote thereat, the vote on any question need 3 not be by ballot. Upon demand for a vote by ballot upon any question by any Stockholder present in person or by proxy at any meeting and entitled to vote thereat, such vote shall be taken by ballot. On any vote taken by ballot, each ballot shall be signed by the Stockholder voting, or by his lawful proxy, and shall state the number and kind of shares voted. (e) Notwithstanding Section 7(d) hereinabove, every Stockholder complying with the provisions of this Section 7(e) and entitled to vote at any election of directors may cumulate his votes and shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) he would be entitled to cast for the election of directors to be elected by him, and he may cast all of such votes for a single candidate for director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit. No Stockholder shall be entitled to cumulate votes and cast them for a candidate for director unless such candidate's name shall have been placed in nomination prior to the voting and the Stockholder shall have given notice at the meeting prior to the voting for directors of the Stockholder's intention to cumulate his votes. If any one Stockholder has given such notice, all Stockholders may cumulate their votes for candidates in nomination. Section 8. PROXIES. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Any such proxy shall be delivered to the secretary of such meeting, at or prior to the time designated in the order of business for so delivering such proxies. A duly elected proxy shall be irrevocable if it states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Section 9. STOCKHOLDER LIST. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each Stockholder and the number of shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. Section 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action required to be taken, or that may be taken, at any annual or special meeting of the Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action to be taken, shall have been signed by the holders of outstanding stock, eligible to vote on such action, having not less than the minimum number of votes of each class of stock that would be necessary to authorize or take such action at a meeting at which all shares of each class of stock entitled to vote thereon were present and voted. 4 The Secretary shall give prompt notice of the taking of any corporate action without a meeting by less than unanimous written consent to those Stockholders who have not consented in writing. Section 11. INSPECTORS OF ELECTION. In advance of any meeting of the Stockholders, the Board may appoint any person, other than nominees for office as inspectors of election to act at such meeting or any adjournment thereof. If no inspectors of election are so appointed, the chairman of any such meeting may, and on the request of any Stockholder or his proxy shall, make such appointment at the meeting. The number of such inspectors of election shall be one or three. If appointed at a meeting on the request of one or more Stockholders or proxies, the affirmative vote of a majority of shares present in person or by proxy shall determine whether one or three inspectors are to be appointed. In case any person appointed as inspector fails to appear or refuses to act, the vacancy may, and on the request of any Stockholder or a Stockholder's proxy shall, be filled by appointment by the Board in advance of the meeting, or at the meeting by the chairman of the meeting. The duties of such inspector shall include: determining the number of shares outstanding and voting power of each; the shares represented at the meeting; the existence of a quorum; the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and performing such acts as may be proper to conduct the election or vote with fairness to all Stockholders. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Section 12. RECORD DATE. In order that the Corporation may determine the Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (a) The record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) The record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; (c) The record date for determining Stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. 5 A determination of Stockholders of record entitled to notice of or to vote at a meeting of Stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 13. PROCEDURES FOR MEETINGS. All meetings of Stockholders shall be conducted according to such rules and procedures as the Board of Directors may establish by resolution from time to time as being in the best interests of the Stockholders and as may be deemed appropriate for insuring that such meetings are conducted in a fair and orderly manner and in accordance with the Certificate of Incorporation and these Bylaws. ARTICLE III BOARD OF DIRECTORS Section 1. POWERS. The business and affairs of the Corporation shall be managed by, or under the direction of the Board, except as may be otherwise provided by the General Corporation Law or in the Certificate of Incorporation or these Bylaws. Without prejudice to such powers, but subject to the same limitation, it is hereby expressly declared that the directors shall have the following powers in addition to other powers enumerated in these Bylaws: (a) To select and remove all officers, agents and employees of the Corporation; prescribe any powers and duties for them that are consistent with law, with the Certificate of Incorporation, and with these Bylaws; fix their compensation; and require from them security for faithful service; (b) To conduct, manage and control the affairs and business of the Corporation, and to make rules and regulations therefor consistent with law, with the Certificate of Incorporation and with these Bylaws; (c) To change the offices of the Corporation from one location to another; to fix and locate from time to time one or more other offices of the Corporation within or without the State of Delaware; to cause the Corporation to be qualified to do business and to conduct business in any other state, territory, dependency or country; and to designate any place within or without the State of Delaware for the holding of any Stockholders meeting or meetings, including annual meetings; (d) To adopt, make and use a corporate seal; to prescribe the forms and certificates of stock; and to alter the form of the seal and certificates; (e) To authorize the issuance of shares of stock of the Corporation from time to time, upon such terms and for such consideration as may be lawful; (f) To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations, and other evidences of debt and securities therefor. 6 Section 2. NUMBER AND QUALIFICATIONS. The number of directors of the Corporation shall be five (5). Directors need not be Stockholders of the Corporation unless required by the Certificate of Incorporation. Section 3. ELECTION AND TERM OF OFFICE. Members of the initial Board of Directors shall hold office until the first annual meeting of Stockholders and until their successors have been elected and qualified. The directors of the Corporation shall be elected at the annual meeting of the Stockholders, but if such annual meeting is not held or the directors are not elected thereat the directors may be elected at a special meeting held for that purpose. Each director shall hold office until the next annual meeting and until a successor is elected and qualified. Section 4. VACANCIES. (a) Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the Stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (b) If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any Stockholder or an executor, administrator, trustee or guardian of a Stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a Stockholder, may call a special meeting of Stockholders in accordance with the provisions of the Certificate of Incorporation and the Bylaws or may apply to the Delaware Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law. (c) If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any Stockholder or Stockholders holding at least 10 percent of the total number of shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by Section 211 of the General Corporation Law. (d) Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in these Bylaws. (e) Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except that if less than the entire Board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. 7 (f) Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board, unless the notice specifies a later date for the effectiveness of such resignation. Section 5. PLACE OF MEETING. Unless otherwise provided in the Certificate of Incorporation, or by unanimous written consent of all acting directors, meetings, both regular and special, of the Board shall be held at the Corporation's principal executive offices within the State of California or at such other place or places within or without the State of Delaware, as the Board may from time to time determine. Section 6. REGULAR MEETINGS. Immediately following each annual meeting of the Stockholders the Board shall hold a regular meeting at the same place at which such Stockholders' meeting is held, or any other place as may be fixed from time to by the Board of Directors. Notice of such meeting need not be given. Other regular meetings of the Board shall be held without call at such time and place as the Board may from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day not a legal holiday. Notice of a regular meeting need not be given. Section 7. SPECIAL MEETINGS. Except as otherwise provided in the Certificate of Incorporation, special meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the President, the Secretary or by any three directors. Written notice of the time and place of special meetings shall be delivered personally to each director or communicated to each director by telephone or telegraph or telex or cable or mail or other form of recorded communication, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation or, if it is not so shown on such records or is not readily ascertainable, at that director's residence or usual place of business. In case such notice is mailed, it shall be deposited in the United States mail at least seven days prior to the time of the holding of the meeting. In case such notice is delivered personally or by other form of written communication, it shall be delivered at least 48 hours before the time of the holding of the meeting. The notice shall state the time of the meeting, but need not specify the place of the meeting if the meeting is to be held at the principal executive office of the Corporation. The notice need not state the purpose of the meeting unless expressly provided otherwise by statute. Section 8. MEETINGS BY COMMUNICATION EQUIPMENT. Members of the Board of the Corporation, or any committee designated by the Board, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. 8 Section 9. QUORUM AND MANNER OF ACTING. The presence of a majority to the total number of directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at a meeting duly held shall be the act of the Board. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. Notice of an adjourned meeting need not be given. Section 10. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The transactions of any meeting of the Board, however called and noticed or wherever held, shall be as valid as though made or performed at a meeting duly held after regular call and notice, if, either before or after the meeting, each of the directors not present or who, though present, has prior to the meeting or at its commencement protested the lack of proper notice to such director, signs a written waiver of notice or a consent to holding such meeting or approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 11. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 12. COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses incurred by them, as may be fixed or determined by resolution of the Board of Directors. Section 13. COMMITTEES. The Board may, by resolution passed by a majority of the directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the Stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the Stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Any director may be removed from a committee with or without cause by the affirmative vote of a majority of the entire Board of Directors. 9 ARTICLE IV OFFICERS Section 1. OFFICERS. The officers of the Corporation shall be a Chairman, a Chief Executive Officer, a President, a Treasurer and a Secretary. The Corporation may also have, at the discretion of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any number of offices may be held by the same person. Section 2. ELECTION OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen annually by the Board, and each shall serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment. Section 3. SUBORDINATE OFFICERS. The Board may appoint, and may empower the Chief Executive Officer to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board or Chief Executive Officer may from time to time determine. Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Without prejudice to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board, at any regular or special meeting of the Board, or by any officer upon whom such power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular election or appointment to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board. Section 7. CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board, the Chief Executive Officer, if such an officer be elected, shall, subject to the control of the Board and the Chairman, have general supervision, direction and control of the business and the officers of the Corporation. The Chief 10 Executive Officer shall preside at all meetings of the Stockholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board. The Chief Executive Officer shall exercise and perform such other powers and duties as may be from time to time assigned to him by the Board. Section 8. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board to the Chairman of the Board and the Chief Executive Officer, if there be such officers, the President shall be the chief operating officer of the Corporation and shall, subject to the control of the Board, have general supervision, direction, and control of the business and the officers of the Corporation (other than the Chairman and Chief Executive Officer). The President shall preside at all meetings of the Stockholders in the absence of the Chairman and the Chief Executive Officer, and, in the absence of the Chairman and the Chief Executive Officer, at all meetings of the Board. The President shall have the general powers and duties of management usually vested in the office of president and general manager of a Corporation, and shall have such other powers and duties as may be prescribed by the Board and the Chief Executive Officer. Section 9. VICE PRESIDENTS. In the absence or disability of the Chairman, the Chief Executive Officer and the President, the Vice Presidents, if any, in order of their rank as fixed by the Board, or, if not ranked, the Vice President designated by the Board shall perform all the duties of such officer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, such offices. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board, the Chief Executive Officer or the President. Section 10. SECRETARY. The Secretary shall keep, or cause to be kept, at the principal executive office or such other place as the Board may direct, a book of minutes of all meetings and actions of directors, committees of directors, and Stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at Stockholders' meetings, and the proceedings. The Secretary shall give, or cause to be given, notice of all meetings of the Stockholders and of the Board required by the Bylaws or by law to be given, and he shall keep the seal of the Corporation, if one be adopted, in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. Section 11. TREASURER. The Treasurer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent to the Stockholders of the Corporation such financial statements and reports as are by law or these Bylaws required to be sent to them. The books of account shall at all reasonable times be open to inspection by any director. 11 The Treasurer shall deposit all monies and other valuables in the name or to the credit of the Corporation with such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the President and directors, whenever they request it, an account of all transactions undertaken as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board. ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purposes of this Article, "agent" means any person who is or was a director, officer, employee or other agent of the corporation, or is or was a director, officer, employee or other agent of the corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or complete action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under Section 2 or Section 3 of this Article. Section 2. ACTIONS OTHER THAN BY THE CORPORATION. The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than a action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 3. ACTIONS BY THE CORPORATION. The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other 12 enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 2 and 3, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 5. REQUIRED APPROVAL. Any indemnification under Sections 1 and 2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 2 and 3. Such determination shall be made (a) by the Board by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such disinterested directors so direct, by independent legal counsel in a written opinion, or (c) by the affirmative vote of a majority of Stockholders. Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board deems appropriate. Section 7. CONTRACTUAL RIGHTS. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, vote of Stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 8. LIMITATIONS. No indemnification or advance shall be made under this Article, except as provided in Section 4, in any circumstances where it appears: 13 (a) That it would be inconsistent with a provision of the Certificate of Incorporation, a resolution of the Stockholders or an agreement in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. Section 9. INSURANCE. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. Section 10. CONSTITUENT CORPORATIONS. For purposes of this Article, references to "the Corporation" shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 11. DEFINITIONS. For purposes of this Article, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article. ARTICLE VI MISCELLANEOUS Section 1. INSPECTION OF BOOKS AND RECORDS BY STOCKHOLDERS. Any Stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its Stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a Stockholder. In every instance where an 14 attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the Stockholder. The demand under oath shall be directed to the Corporation at its registered office in the State of Delaware or at its principal place of business. Section 2. INSPECTION OF BOOKS AND RECORDS BY DIRECTORS. Any director shall have the right to examine the Corporation's stock ledger, a list of its Stockholders and its other books and records for a purpose reasonably related to his position as a director. Such right to examine the records and books of the Corporation shall include the right to make copies and extract therefrom. Section 3. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Section 4. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board, except as otherwise provided in these Bylaw, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. Section 5. CERTIFICATES FOR SHARES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman or the President or a Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation representing the number of shares owned by him in the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6. TRANSFER OF SHARES. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the holder thereof, or by his attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or a transfer agent of the Corporation, if any, and on surrender of the certificate or certificates for such shares properly endorsed. A person in whose name shares of stock and on the books of the Corporation shall be deemed the owner thereof as regards the Corporation, and upon any transfer of shares of stock the person or persons into whose name or names such shares shall have been transferred, with respect to all rights, privileges and obligations of holders of stock of the Corporation and as against the Corporation or any other person or persons. The term "person" or "persons" wherever used herein shall be deemed to 15 include any partnership, corporation, association or other entity. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact, if known to the Secretary or to such transfer agent, shall be so expressed in the entry of transfer. Section 7. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 8. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, the President, or any vice president or any person designated by any of such officers, is authorized, in the absence of authorization by the Board, to vote on behalf of the Corporation any and all shares of any other corporation or corporations, foreign or domestic, for which the Corporation has the right to vote. The authority granted to these officers to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by proxy duly executed by these officers. Section 9. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. Section 10. AMENDMENTS. Unless otherwise provided in the Certificate of Incorporation, the power to adopt, amend or repeal any Bylaws of the Corporation shall be in the Stockholders of the Corporation entitled to vote. Section 11. CONFORMANCE TO THE LAW. In the event that it is determined that these Bylaws, as now written or as amended, conflict with the General Corporation Law, or any other applicable law, as now enforced or as amended, these Bylaws shall be deemed amended, without action of the Board or the Stockholders, to conform with such law. Such amendment to be so interpreted as to bring these Bylaws within minimum compliance. For purposes of this section "amendment" shall include a repeal of, or a change in interpretation of, the relevant compendium. Section 12. SEAL. The Board of Directors shall provide a corporate seal, which shall be in the form of a circle and shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 13. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of January of each year. 16 Section 14. DIVIDENDS; SURPLUS. Subject to the provisions of the Certificate of Incorporation and any restrictions imposed by statute, the Board of Directors may declare dividends out of the net assets of the Corporation in excess of its capital or, in case there shall be no such excess, out of the net profits of the Corporation for the fiscal year then current and/or the preceding fiscal year, or out of any funds at the time legally available for the declaration of dividends (hereinafter referred to as "surplus or net profits") whenever, and in such amounts as, in its sole discretion, the conditions and affairs of the Corporation shall render advisable. The Board of Directors in its sole discretion may, in accordance with law, from time to time set aside from surplus or net profits such sum or sums as it may think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for the purpose of maintaining or increasing the property or business of the Corporation, or for any other purpose as it may think conducive to the best interests of the Corporation. 17 EX-3.10-1 18 EXHIBIT 3.10.1 [STAMP] AGREEMENT AND PLAN OF MERGER HOLLINGSEAD INTERNATIONAL, INC. AND HOLLINGSEAD AIRCRAFT CORPORATION This Agreement and Plan of Merger is made this 30th day of October, 1990, by and between Hollingsead Aircraft Corporation, an Ohio corporation ("Aircraft"), and Hollingsead International, Inc., a California corporation ("Hollingsead"; both corporations, collectively, the "Merging Corporations"). WHEREAS, Hollingsead was incorporated under the laws of the State of California; WHEREAS, Aircraft was incorporated under the laws of the State of Ohio; WHEREAS, Aircraft owns all of the issued and outstanding capital stock of Hollingsead; and WHEREAS, the Directors of each of the Merging Corporations deem a merger of the corporations to be in the best interests of both; NOW, THEREFORE, in consideration of the covenants herein contained, the Merging Corporations, having complied with all the conditions of Sections 1701.79 and 1701.801 of the Ohio General Corporation Law and Sections 1103, 1108, and 1201 of the California General Corporation Law, have agreed and do hereby agree that Aircraft shall be and is hereby merged with and into Hollingsead, and Hollingsead shall be the surviving corporation (the "Surviving Corporation") pursuant to and upon the authority of Sections 1701.79 and 1701.801 of the Ohio General Corporation Law and Sections 1103, 1108, and 1201 of the California General Corporation Law, such merger (the "Merger") to be effective at the close of business on October 30, 1990 (the "Effective Date"). FIRST: ARTICLES OF INCORPORATION. The Articles of Incorporation of Hollingsead shall be Articles of Incorporation of the Surviving Corporation. SECOND: DIRECTORS AND OFFICERS. The directors and officers of Aircraft on the date hereof shall continue as the directors and officers of the Surviving Corporation from and after the Effective Date of the Merger until their respective successors shall have been duly elected and qualified. THIRD: BYLAWS. The Bylaws of the Surviving Corporation shall be the Bylaws of Hollingsead as in existence immediately prior to the Effective Date. FOURTH: SHARES OF HOLLINGSEAD. The Common Shares, without par value, of Hollingsead shall be unaffected by the Merger. FIFTH: SHARES OF AIRCRAFT. Each outstanding Common Share, no par value, of Aircraft is hereby cancelled, and the rights of the holder thereof extinguished. SIXTH: CONTINUED AUTHORITY. The separate existence of Aircraft shall cease on the effective date set forth above and thereupon it shall be merged into Hollingsead in accordance with this Agreement, except that whenever a conveyance, assignment, transfer, deed or other instrument, or act, is necessary to vest property or rights in the Surviving Corporation, the officers of Aircraft shall execute, acknowledge and deliver such instruments, and do such acts; for such purposes, the existence of Aircraft and the authority of its officers and directors shall be deemed continued notwithstanding the Merger. SEVENTH: RIGHTS OF SURVIVING CORPORATION. Upon the Effective Date of the Merger and thereafter, the Surviving Corporation shall have all the rights, privileges, immunities, powers, franchises and authority, and shall be subject to all the obligations of a corporation formed under the California General Corporation Law; and all property of every description and every interest therein, and all obligations of or belonging to or due Aircraft shall thereafter be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed; and title to any real estate or any interest therein vested in Aircraft shall not revert or in any way be impaired by reason of the Merger. Hollingsead shall henceforth be liable for all of the obligations of the Merging Corporations; and any claim existing or action or proceeding pending by or against the Merging Corporations may be prosecuted to judgment, with the right of appeal as in other cases, as if the Merger had not taken place, or Hollingsead may be substituted in its place, and all rights and creditors of the Merging Corporations shall be preserved unimpaired, and all liens upon the property of the Merging Corporation shall be preserved unimpaired, limited in lien to the property affected by such liens immediately prior to the Effective Date of the Merger. EIGHTH: PRINCIPAL OFFICE. The principal office of Hollingsead in the State of California shall be Santa Fe Springs. NINTH: SERVICE OF PROCESS. Hollingsead hereby appoints the Secretary of State of the State of Ohio as its agent to accept service of process in any proceeding in the State of Ohio to enforce against the surviving corporation any obligation of Aircraft or to enforce the rights of a dissenting shareholder. -2- IN WITNESS WHEREOF, the Merging Corporations have caused this Agreement and Plan of Merger to be signed in their respective corporate names by their respective officers thereunto duly authorized on the date first above written. HOLLINGSEAD INTERNATIONAL, HOLLINGSEAD AIRCRAFT CORPORATION INC. By: /s/ R. Jack DeCrane By: /s/ R. Jack DeCrane -------------------------------- -------------------------------- R. Jack DeCrane R. Jack DeCrane, President and By: /s/ W. Scott Seeley and By: /s/ W. Scott Seeley ---------------------------- ----------------------- W. Scott Seeley W. Scott Seeley, Secretary -3- ARTICLES OF INCORPORATION OF HOLLINGSEAD-PRYOR ENTERPRISES, INC. ----------------------------------- ARTICLE FIRST: Name ---- The name of the corporation is HOLLINGSEAD-PRYOR ENTERPRISES, INC. ARTICLE SECOND: Purposes -------- The corporation's purposes are: (a) Primarily to engage in the specific business of the engineering, design and manufacture of components for the air space industry and related industries; (b) To engage generally in the business of the engineering, design, manufacturing, selling, using, leasing and otherwise dealing with components for the air space industry and related industries; (c) To engage in any business related or unrelated to those described in clauses (a) and (b) of this Article SECOND and from time to time authorized or approved by the board of directors of this corporation; (d) To act as partner or joint venturer or in any other legal capacity in any transaction; (e) To do business anywhere in the world; and (f) To have and exercise all rights and powers from time to time granted to a corporation by law. The above purpose clauses shall not be limited by reference to or inference from one another, but each such purpose clause shall be construed as a separate statement conferring independent purposes and powers upon the corporation. ARTICLE THIRD: Location -------- The County in the State of California where the principal office for the transaction of the business of the corporation is located in the County of Los Angeles. ARTICLE FOURTH: Number and Names of Directors ---------------------------- (a) The number of directors of the corporation is three. (b) The names and addresses of the persons who are appointed to act as first directors are: KEITH W. MILLER, 305 Bank of America Building Whittier, California FRED A. SWIDE, 305 Bank of America Building Whittier, California VERA H. GREENWALT, 305 Bank of America Building Whittier, California ARTICLE FIFTH: Stock ----- The total number of shares which the corporation is authorized to issue is Twenty Five Thousand (25,000.00) shares. (a) The aggregate par value of said shares is Twenty Five Thousand ($25,000) Dollars and the par value of each share is One ($1.00) Dollar. No distinction shall exist between the shares of the corporation or the holders thereof. IN WITNESS WHEREOF, the undersigned and above-named incorporators and first directors of this corporation have executed these articles of incorporation on December 16, 1966. Keith W. Miller ----------------- KEITH W. MILLER Fred A. Swide ----------------- FRED A. SWIDE Vera H. Greenwalt ----------------- VERA H. GREENWALT STATE OF CALIFORNIA ) ) ss. COUNTRY OF LOS ANGELES ) On December 16, 1966, before me, the undersigned, a Notary Public in and for said County and State, personally appeared KEITH W. MILLER, FRED A. SWIDE and VERA H. GREENWALT, known to me to be the persons whose names are subscribed to the foregoing articles of incorporation, and acknowledged to me that they executed the same. WITNESS my hand and official seal. Virginia A. Gray -------------------- Notary Public in and for said County and State Exhibit 99.22 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF HOLLINGSEAD-PRYOR ENTERPRISES, INC. ----------------------------------- Robert A. Hollingsead and Harold H. Benjamin certify that: 1. They are the President and Secretary, respectively, of Hollingsead-Pryor Enterprises, Inc., a California corporation. 2. Article FIRST of the Articles of Incorporation of said corporation shall be amended to read in full as follows: "Article First Name ---- The name of the corporation is Hollingsead International, Inc." 3. The amendment has been approved by the Board of Directors. 4. The amendment has been approved by the required vote of the shareholders in accordance with Section 902 of the California Corporations Code. The corporation has only one class of shares. Each outstanding share is entitled to one vote. The corporation has 1,500 shares outstanding and, hence, the total number of shares entitled to vote with respect to the amendment was 1,500. The number of shares voting in favor of the amendment exceeded the vote required, in that the affirmative vote of a majority, that is, more than 50 percent of the outstanding shares was required for approval of the amendment and the amendment was approved by the affirmative vote of 1,500 shares, or exactly 100 percent of the outstanding voting shares. /s/ Robert A. Hollingsead -------------------------------------- Robert A. Hollingsead, President /s/ Harold H. Benjamin, -------------------------------------- Harold H. Benjamin, Secretary Each of the undersigned declares, under penalty of perjury, that the matters set forth in the foregoing certificate are true and correct of his own knowledge and that this declaration was executed on February 19, 1979, at Santa Fe Springs, California. /s/ Robert A. Hollingsead -------------------------------------- Robert A. Hollingsead /s/ Harold H. Benjamin -------------------------------------- Harold H. Benjamin EX-3.10-2 19 EXHIBIT 3.10.2 Ex. 99.29 BYLAWS OF HOLLINGSEAD INTERNATIONAL, INC. a California corporation -1- ARTICLE I OFFICES SECTION 1.1 PRINCIPAL OFFICE. The board of directors shall fix, and from time to time may change, the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state, and the corporation has one or more business offices in such state, the board of directors shall fix and designate a principal business office in the State of California. SECTION 1.2 OTHER OFFICES. The board of directors may at any time, and from time to time as it deems appropriate, establish one or more branch or other subordinate offices at such place or places within or without the State of California where the corporation is qualified to do business. ARTICLE II DIRECTORS SECTION 2.1 EXERCISE OF CORPORATE POWERS. Except as otherwise provided by these bylaws, by the articles of incorporation of the corporation, or by the laws of the State of California now or hereafter in force, all corporate powers of the corporation shall be vested in and exercised by or under the authority of, and the business and affairs of the corporation shall be controlled by, the board of directors. -2- SECTION 2.2 NUMBER. The authorized number of directors of the corporation shall be three (3) until changed by a duly adopted amendment of the articles of incorporation or by an amendment of this Section 2.2. SECTION 2.3 NEED NOT BE SHAREHOLDERS. The directors of the corporation need not be shareholders of the corporation. SECTION 2.4 COMPENSATION. Directors shall not receive any stated salary or compensation for their services as directors or as members of any committee, but may receive such compensation for their services and such reimbursement for their expenses as may be fixed from time to time by resolution of the board of directors. Nothing contained herein shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and from receiving compensation therefor. SECTION 2.5 ELECTION AND TERM OF OFFICE. Directors shall be elected at each annual meeting of the shareholders; provided that, if for any reason said annual meeting or any adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall begin immediately after their election and shall continue until the next annual meeting of the shareholders and until their respective successors are elected and qualified. -3- SECTION 2.6 VACANCIES. Vacancies in the board of directors may be filled by a majority vote of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares represented at a duly held shareholders' meeting at which a quorum is present, or by the written consent of all of the outstanding shares; provided, however, that no director may be removed except by an order of court pursuant to Section 304 of the California Corporations Code, or by the shareholders pursuant to the provisions of Section 303 of the California Corporations Code. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders shall constitute less than a majority of the directors then in office, then either (1) any holder or holders of an aggregate of five percent or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of shareholders, or (2) the superior court of the proper county shall, upon application of such shareholder or shareholders, summarily order a special meeting of shareholders, to be held to elect the entire board. The term of office of any director shall terminate upon that election of a successor. A vacancy or vacancies on the board of directors shall be deemed to exist in the event of the death, resignation, or removal of -4- any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent of the shareholders, other than to fill a vacancy created by removal, shall require the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective on giving written notice to the chairman of the board, if there be one, the president, the secretary, or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, a successor may be elected to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. ARTICLE III OFFICERS SECTION 3.1 OFFICERS. The officers of the corporation shall be a president, a secretary and a chief financial officer, who may also be referred to as the treasurer. The corporation may also have such other officers, including a chairman of the board of directors, one or -5- more vice presidents, one or more assistant secretaries and one or more assistant chief financial officers (or treasurers), as the board of directors shall determine. Any two or more of any such offices may be held by the same person. SECTION 3.2 ELECTION OF OFFICERS. The board of directors shall elect each of the officers of the corporation and, subject to any rights under a contract of employment, each of the officers shall serve at the pleasure of the board of directors. SECTION 3.3 SUBORDINATE OFFICERS. All officers of the corporation, except those whose duties are defined in these bylaws, shall have such authority and perform such duties as the board of directors may from time to time determine. In case of the absence, disability or death of either the secretary or the chief financial officer, the assistant secretary and the assistant chief financial officer shall, respectively, exercise all the powers and perform all the duties and be subject to all the restrictions upon the secretary and the chief financial officer. SECTION 3.4 COMPENSATION. The salary of the officers of the corporation and the manner and time of the payment thereof shall be fixed and determined by the board of directors. SECTION 3.5 RESIGNATION AND REMOVAL. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. -6- Subject to the rights, if any, of any officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors. SECTION 3.6 VACANCIES IN OFFICE. A vacancy in any office of the corporation because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in Section 3.2 of these bylaws for regular appointments to that office. ARTICLE IV CHAIRMAN OF THE BOARD SECTION 4.1 POWERS AND DUTIES. The chairman of the board of directors, if there be one, shall have the power to preside at all meetings of the board of directors and shall have such other powers and shall perform such other duties as these bylaws or the board of directors may from time to time prescribe. -7- ARTICLE V PRESIDENT SECTION 5.1 POWERS AND DUTIES. Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the general manager and chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business, officers, agents, employees and property of the corporation. He shall preside at all meetings of the shareholders and in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. Without limiting the generality of the foregoing, the president has the power to affix the signature of the corporation to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the board of directors or which, in the judgment of the president, should be executed on behalf of the corporation. ARTICLE VI VICE PRESIDENT SECTION 6.1 POWERS AND DUTIES. In case of the absence, disability or death of the president, the vice president, if one has been elected, shall exercise all the powers and perform all the duties of, and be subject to all the restrictions upon, the president. If -8- there is more than one vice president, the order in which the vice presidents shall succeed to the powers and duties of the president shall be as fixed by the board of directors, or, in the absence of such designation by the board of directors, the order of succession shall be the same as the order of their election as vice president. The vice president, or vice presidents, as the case may be, shall each have such other powers and perform such other duties as may be granted or prescribed by the board of directors or these bylaws. SECTION 6.2 PRESIDENT PRO TEMPORE. If neither the chairman of the board, the president nor any vice president is present at any meeting of the board of directors, an officer of the corporation may be chosen by the board of directors to be president pro tempore to preside and act at such meeting. If neither the president nor any vice president is present at any meeting of the shareholders, an officer of the corporation may be chosen by the shareholders to be president pro tempore to preside at such meeting. ARTICLE VII SECRETARY SECTION 7.1 POWERS AND DUTIES. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation, or such other place as the board of directors may direct, a book of minutes of all meetings and written actions without a meeting of the directors, the committees of directors, and the shareholders with the time and place of holding, whether annual, regular, special, or adjourned, and if special, how authorized, the notice thereof given, the -9- names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation, or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or duplicate share register, showing the names of the shareholders and their addressses, the number of shares held by each, the number and date of certificates issued for shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall keep, or cause to be kept, a supply of certificates for shares of the corporation, shall fill in, or cause to be filled in, all certificates issued, and shall make, or cause to be made, a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or agents. The secretary shall transfer, or cause to be transferred, upon the share books of the corporation any and all shares of the corporation; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agents of the shares, or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or agents, and the method of transfer of each certificate shall be subject to the -10- reasonable regulations of the transfer agent to which the certificate is presented for transfer, and also, if the corporation then has one or more duly appointed and acting registrars, to the reasonable regulations of the registrar to which the new certificate is presented for registration; and provided, further, that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 12.1 hereof. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required by law or by these bylaws to be given, and shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the bylaws. ARTICLE VIII CHIEF FINANCIAL OFFICER SECTION 8.1 POWERS AND DUTIES. The chief financial officer shall supervise and control the keeping and maintaining of adequate and correct books and records of the accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall, at all reasonable times, be open to inspection by any director. The chief financial officer shall have the custody of all funds, securities, evidences of indebtedness and other valuable documents of the corporation and, at his discretion, shall cause any or -11- all thereof to be deposited in the name and for the account of the corporation with such depository or depositories as may be designated from time to time by the board of directors. He shall receive or cause to be received, and shall give or cause to be given, receipts and acquittances for moneys paid in for the account of the corporation, and shall disburse, or cause to be disbursed, the funds of the corporation as may be directed by the board of directors, taking proper vouchers for such disbursements. He shall render to the president and to the board of directors, whenever they may require, an account of all his transactions as the chief financial officer and of the financial condition of the corporation. He shall also have such other powers and do and perform all such other duties as may be required by the board of directors or these bylaws. -12- ARTICLE IX COMMITTEES SECTION 9.1 COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate and appoint members to one or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may likewise appoint one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the board, or in these bylaws, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the California Corporations Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or on any committee; (d) the amendment or repeal of bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or -13- (g) the appointment of any other committees of the board of directors or the members thereof. SECTION 9.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article XI hereof, with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that a committee need not have a regular meeting after the adjournment of the annual shareholders' meeting; the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE X MEETINGS OF SHAREHOLDERS SECTION 10.1 PLACE OF MEETINGS. Meetings (whether annual, special or adjourned) of the shareholders of the corporation shall be held at the principal executive office of the corporation as specified in Section 1.1 hereof, or at such other place within or without the State of California that has been designated from time to time by resolution of the board of directors or by written consent of all the shareholders entitled to vote thereat. -14- SECTION 10.2 ANNUAL MEETINGS. The annual meeting of the shareholders shall be held each year on a date and at a time designated by the board of directors, provided that the date so designated shall be within five (5) months after the end of the fiscal year of the corporation, and within fifteen (15) months after the last annual meeting. Annual meetings shall be held for the purpose of electing directors, making reports of the affairs of the corporation and transacting such other business as may come before the meeting. SECTION 10.3 SPECIAL MEETINGS. Special meetings of the shareholders may be called at any time by the president, by the board of directors, the chairman of the board of directors, if there be one, or by one or more shareholders holding in the aggregate not less than 10% of the voting power of the corporation. Upon written request delivered in person or by registered or certified mail to the chairman of the board, if there be one, the president, any vice-president or the secretary by any persons (other than the board of directors) entitled to call a meeting of shareholders, specifying the date and time of such meeting and the general nature of the business proposed to be conducted, such officer shall forthwith cause notice, in accordance with Section 10.4 hereof, to be given to all the shareholders entitled to vote at such a meeting that a meeting will be held at a time requested by the person or persons calling the meeting, which shall not be less than thirty-five (35) nor more than sixty (60) days after the receipt of such request. If the notice is not given within twenty (20) days after receipt of such notice, the person or persons requesting the meeting may give the notice. Nothing in this -15- paragraph of Section 10.3 shall be construed as limiting, affecting, or fixing the time of holding a shareholders' meeting called by action of the board of directors. SECTION 10.4 NOTICE OF MEETINGS. Notice of any meeting of shareholders (annual or special) shall be given shareholders entitled to vote at that meeting by the secretary, assistant secretary or by such other person as may be charged with that duty, or if there be no such officer or person, or in case of his neglect or refusal, by any director or shareholder. Notice shall be given by the corporation to any shareholder either personally or by first-class mail or other means of written communication, charges prepaid, addressed to such shareholder at his address appearing on the books of the corporation or at such other address given by him to the corporation for the purpose of notice. If no such address appears on the corporation's books or none is provided by the shareholder, notice shall be deemed to have been given to the shareholder if sent by mail or other means of written communication addressed to the shareholder at the place where the principal executive office of the corporation is situated, or if published at least once in a newspaper of general circulation in the county in which said office is located. Any notice shall be deemed to have been given when personally delivered or deposited in the United States mail, postage prepaid, and addressed as hereinbefore provided or when actually sent by other means of written communication. If any notice addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to -16- indicate that the Service is unable to deliver the notice to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand at the principal executive office of the corporation for a period of one year from the date of the giving of such notice or report to all other shareholders. An affidavit of the mailing or other means of giving notice of any shareholders' meeting shall be executed by the secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the corporation's minute book. Notice of any meeting of shareholders shall be given to each shareholder entitled thereto not less than ten (10) nor more than sixty (60) days before the date of such a meeting. Notice of any meeting of shareholders shall specify the place, the day and the hour of the meeting and (i) in the case of special meetings, the general nature of the business to be transacted, or (ii) in the case of an annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, the board of directors intends to present for election. If action is proposed to be taken at any meeting with respect to any matter to which Sections 310 (directors' conflicts of interest), 902 (amendment of articles of incorporation), 1201 (merger, exchange or sale-of-assets reorganizations), 1900 (voluntary dissolution), or 2007 (plan of distribution on dissolution) of the California Corporations Code -17- applies, the notice shall also state the general nature of that proposal. SECTION 10.5 WAIVER OF NOTICE AND CONSENT TO SHAREHOLDERS' MEETING. The transactions of any meeting of shareholders (annual, special or adjourned), however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the shareholders entitled to vote, who was not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof; provided, that if action is taken or proposed to be taken for approval of any of those matters specified in the last sentence of Section 10.4 hereof, the written waiver, consent to holding the meeting or approval of the minutes shall specify the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall constitute a waiver of that person's right to notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required to be included in the notice of the meeting, but not so included, if that objection is expressly made at the meeting. SECTION 10.6 QUORUM. The presence in person or by proxy of -18- the holders of a majority of the shares entitled to vote at any meeting shall constitute a quorum for the transaction of business at that meeting. Shares shall not be counted to make up a quorum for the meeting if the voting of those shares at the meeting has been enjoined or if for any reason they cannot be lawfully voted at the meeting. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, but no action other than adjournment may be taken unless approved by a majority of the shares necessary to constitute a quorum. SECTION 10.7 ADJOURNED MEETINGS. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum no other business may be transacted at that meeting, except as provided in Section 10.6. When a meeting is adjourned for more than forty-five (45) days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Section 10.4. Except as aforesaid, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken. SECTION 10.8 VOTING RIGHTS. Except as otherwise provided in Sections 702-704 of the California Corporations Code (shares held by a -19- fiduciary, in the name of a corporation, or in joint ownership), only persons in whose names shares entitled to vote stand on the stock records of the corporation on the day fifteen (15) days prior to any meeting of shareholders or action without a meeting, or on such other day as may be fixed by the board of directors for the determination of shareholders of record, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting or action without a meeting, shall be entitled to notice of any meeting, to vote at such meeting, or give this consent to action without a meeting. Except as provided in Section 708 of the California Corporations Code and Section 10.11 of these bylaws, each share shall be entitled to one vote. A fraction of a share shall not be entitled to any voting rights whatsoever. SECTION 10.9 VOTING. The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than the election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote on any matter (other than the election of directors) of a majority of the shares represented at the meeting and entitled to vote shall be the act of the shareholders, unless the vote -20- of a greater number or voting by classes is required by the California Corporations Code or by the articles of incorporation. SECTION 10.10 SHAREHOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken at any meeting (annual, special or adjourned) of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided that, except in the case of a vacancy created by removal, a director may be elected at any time to fill a vacancy on the board of directors that has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporation records. When written consents are given with respect to any shares, they shall be given by, and accepted from, the persons in whose names such shares stand on the books of the corporation, or their proxies, at the time provided in Section 10.8 above. Any shareholder giving a written consent, or his proxy, or his transferee or personal representative, or their respective proxies, may revoke the written consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the -21- proposed action have been filed with the secretary of the corporation, but may not do so thereafter. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders has not been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting, to those shareholders entitled to vote who have not consented in writing. In the case of approval of actions to which Section 310, 317, 1201, or 2007 of the California Corporations Code applies, the notice shall be given at least ten (10) days before the consummation of the action authorized by that approval. SECTION 10.11 ELECTION OF DIRECTORS. Provided a shareholder has given notice, prior to the commencement of the voting for the election of directors of his intention to cumulate votes, any shareholder entitled to vote at any election of directors may cumulate his votes for any candidate whose name has been placed in nomination prior to commencement of the voting and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are entitled, or distribute his votes on the same principle among as many candidates as he thinks fit. If any shareholder has given notice of his intention to cumulate his votes, then every shareholder entitled to vote may cumulate his votes for candidates in nomination. The candidates receiving the highest number of affirmative votes up to the number of directors to be elected shall be, and be declared, elected. Votes cast against a director and votes withheld shall have no legal effect. Elections for directors need -22- not be by ballot except upon demand made by a shareholder who holds shares entitled to vote at the meeting and before the voting begins. SECTION 10.12 PROXIES. Every person entitled to vote shall have the right to do so by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the secretary of the corporation. Except in the case of proxies identified as irrevocable proxies, the revocability of which is governed by Sections 705(e) and 705(f) of the California Corporations Code, a validly executed proxy shall remain in full force and effect until either (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or by attendance at the meeting and voting in person by, the person executing the proxy, or (ii) receipt by the corporation, before the vote pursuant to that proxy is counted, of written notice of the death or incapacity of the maker of that proxy; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided on the proxy. ARTICLE XI MEETINGS OF DIRECTORS SECTION 11.1 PLACE OF MEETINGS. Meetings (whether regular, special or adjourned) of the board of directors of this corporation shall be held at the principal executive office of the corporation, as specified in Section 1.1 hereof, or at such other place within or without the State of California which has been designated in the notice of the meeting. Any meeting (regular, special or adjourned) may be held -23- by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all participating directors shall be deemed to be present in person at the meeting. SECTION 11.2 REGULAR MEETINGS. Regular meetings of the board of directors shall be held promptly after the adjournment of each annual meeting of the shareholders and at such other times as may be designated from time to time by resolution of the board of directors. Notice of regular meetings shall not be required, unless the meeting is to be held at a place other than the principal executive office of the corporation, as specified in Section 1.1 hereof, in which case notice of the different meeting place shall be given in the same manner as that specified below for giving notice of special meetings. SECTION 11.3 SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, if there be one, the president, any vice president, the secretary, or by any two or more of the directors. SECTION 11.4 NOTICE OF SPECIAL MEETINGS. Notice of the time and place of special meetings of the board of directors shall be delivered personally or by telephone or sent by first-class mail or by other form of written communication, charges prepaid, addressed to each director at that director's address as it appears on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally, or by telephone, telegram, telex or similar means of communication, it shall -24- be delivered personally, by telephone, or to the common carrier for transmission at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation. SECTION 11.5 ADJOURNED MEETINGS. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting of the board of directors to another time and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of the time and place of holding the adjourned meeting shall be given in the manner specified in Section 11.4, to the directors who were not present at the time of the adjournment. SECTION 11.6 QUORUM. Except to adjourn as provided in Section 11.5 hereof, a majority of the authorized number of directors shall constitute a quorum of the board of directors for the transaction of business; provided, however, that if and for so long as the authorized number of directors is one, one director shall constitute a quorum. Subject to the provisions of Sections 310, 311 and 317(e) of the California Corporations Code, every act or decision done or made by not less than a majority of the directors present at a meeting duly held and at which a quorum is present shall be regarded as an act of the board of directors. A meeting at which a quorum is initially present -25- may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. SECTION 11.7 WAIVER OF NOTICE AND CONSENT. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though transacted at a meeting duly held after regular call and notice, if a quorum is present and if either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall be deemed given to any director who attends a meeting without protesting, either before or at its commencement, the lack of notice to such director. SECTION 11.8 WRITTEN CONSENT IN LIEU OF MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to such action. Such action by written consent shall have the same force and effect as a unanimous vote of such directors at a meeting duly called and noticed. Each such written consent or consents shall be filed with the minutes of the proceedings of the board of directors. ARTICLE XII SHARES OF STOCK SECTION 12.1 CERTIFICATES OF STOCK. There shall be issued to each holder of fully paid shares of the corporation a certificate or -26- certificates for such shares. Every such certificate shall be signed in the name of the corporation by the chairman of the board of directors or the president or any vice president and by the secretary or an assistant secretary or the chief financial officer or any assistant chief financial officer of the corporation and countersigned by a transfer agent of the corporation (if the corporation shall then have a transfer agent) and registered by the registrar of the shares of the corporation (if the corporation shall then have a registrar). SECTION 12.2 LOST CERTIFICATES. The board of directors may by resolution provide that in the event any certificate or certificates for shares or any other security of the corporation shall be alleged to have been lost, stolen or destroyed, no new certificate or certificates shall be issued in lieu thereof until an indemnity bond in such form and in such amount as shall be approved by the board of directors shall have been furnished. The board of directors may adopt such other provisions and restrictions with reference to lost certificates as it shall in its discretion deem appropriate. ARTICLE XIII SUNDRY PROVISIONS SECTION 13.1 INSTRUMENTS IN WRITING. All checks, drafts, demands for money and notes of the corporation, and all written contracts of the corporation, shall be signed or endorsed by such officer or officers, agent or agents, as provided in these bylaws or as the board of directors may designate from time to time by resolution. No officer, agent or employee of the corporation shall have power to bind the corporation by contract or otherwise unless authorized to do -27- so by these bylaws or by the board of directors. SECTION 13.2 FISCAL YEAR. The board of directors may by resolution adopt for the corporation a fiscal year other than the calendar year, and may by resolution change the same from time to time. SECTION 13.3 SHARES HELD BY THE CORPORATION. Shares in other corporations standing in the name of the corporation may be voted or represented and all rights incident thereto may be exercised on behalf of the corporation by any officer of this corporation authorized so to do by resolution of the board of directors, or in the absence of such a resolution, by the chairman of the board of directors, the president or any vice president. SECTION 13.4 ANNUAL REPORT. The annual report to shareholders referred to in Section 1501 of the California Corporations Code is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the board of directors from issuing annual or other periodic reports to the shareholders of the corporation as they consider appropriate. SECTION 13.5 INDEMNIFICATION. The corporation shall, to the maximum extent permitted by the California Corporations Code, have the power to indemnify each of its agents against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact any such person is or was an agent of the corporation, and shall have power to advance to each such agent expenses incurred in defending any such proceeding to the maximum extent permitted by that law. For purposes of this Section 13.5, an "agent" of the corporation includes any person -28- who is or was a director, officer, employee, or other agent of the corporation, or is or was serving at the request of the corporation as director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. ARTICLE XIV CONSTRUCTION OF BYLAWS WITH REFERENCE TO PROVISIONS OF LAW SECTION 14.1 BYLAW PROVISIONS ADDITIONAL AND SUPPLEMENTAL TO PROVISIONS OF LAW. All restrictions, limitations, requirements and other provisions of these bylaws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal. SECTION 14.2 BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF LAW. Any article, section, subsection, subdivision, sentence, clause or phrase of these bylaws which, upon being construed in the manner provided in Section 14.1 hereof, shall be contrary to or inconsistent with any applicable provision of law, shall not apply so long as said provisions of law remain in effect, but such result shall not affect the validity or applicability of any other portions of these bylaws, it being hereby declared that these bylaws would have been adopted and each article, section, subsection, subdivision, sentence, -29- clause or phrase thereof, irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal. SECTION 14.3 CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules of construction and definitions in the California Corporations Code shall govern the construction of these bylaws. Without limiting the generality of the foregoing, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. All references in these bylaws to the California Corporations Code or to sections of the Code shall be deemed to be to such Law or sections as they may be amended and in effect and, if renumbered, to such renumbered provisions at the time of any action taken under the bylaws. -30- ARTICLE XV ADOPTION, AMENDMENT OR REPEAL OF BYLAWS SECTION 15.1 BY SHAREHOLDERS. New bylaws may be adopted, and these bylaws may be amended or repealed by the vote or written assent of shareholders entitled to exercise a majority of the voting power of the corporation. SECTION 15.2 BY THE BOARD OF DIRECTORS. Subject to the right of shareholders to adopt, amend or repeal bylaws, bylaws other than a bylaw or amendment thereof changing the authorized number of directors may be adopted, amended or repealed by the board of directors. A bylaw adopted by the shareholders may limit or restrict the power of the directors to adopt, amend or repeal bylaws, or may deprive them of the power. -31- EX-3.11-1 20 EXHIBIT 3.11.1 Exhibit 3.11.1 ARTICLES OF INCORPORATION OF TRI-STAR ELECTRONICS INTERNATIONAL II, INC. ***** FIRST: That the name of the corporation is Tri-Star Electronics International II, Inc. SECOND: This corporation is authorized to issue only one class of shares of stock; and the total number of shares which this corporation is authorized to issue is one thousand (1,000) at no par value. THIRD: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. FOURTH: The name of this corporation's initial agent for service of process in the State of California. CT Corporation System IN WITNESS WHEREOF, the undersigned has executed these Articles this 29th day of December, 1997. /s/ Christie L. Gomez ----------------------------------- Christie L. Gomez Incorporator CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION TRI-STAR ELECTRONICS INTERNATIONAL II, INC. The undersigned certify that: 1. They are the chairman of the board and the secretary, respectively, of Tri-Star Electronics International II, Inc., a California corporation. 2. Article First of the Articles of Incorporation of the above corporation is amended to read as follows: The name of this corporation is Tri-Star Electronics International, Inc. 3. The foregoing amendment has been duly approved by the sole director of the corporation. 4. The foregoing amendment has been duly approved by the affirmative (100%) vote of the sole shareholder of the corporation in accordance with the requirements of Section 902, California Corporations Code. The total number of outstanding shares of the corporation entitled to vote is 100. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. DATE: 3-31-98 /s/ R. Jack DeCrane ------------------------------------- R. Jack DeCrane, Chairman of the Board /s/ Robert A. Rankin ---------------------------------------- Robert A. Rankin, Secretary and Treasurer EX-3.11-2 21 EXHIBIT 3.11.2 B Y L A W S OF TRI-STAR ELECTRONICS INTERNATIONAL, INC. ARTICLE I OFFICES Section 1. PRINCIPAL EXECUTIVE OFFICE. The Board of Directors by resolution shall designate a principal executive office for the corporation at any place where the corporation is qualified to do business. Section 2. PRINCIPAL BUSINESS OFFICE. If the principal executive office is located outside California, and the corporation has one or more business offices in California, the Board of Directors shall designate a principal business office in the State of California. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. All meetings of shareholders shall be held either at the principal executive office or at any other place within or without the State of California which may be designated by the Board of Directors or by the written consent of all shareholders entitled to vote at such meeting given either before or after the meeting and filed with the Secretary of the corporation. Section 2. ANNUAL MEETINGS. The annual meetings of shareholders shall be held on such date as may be set by the Board of Directors therefor. At such meetings directors shall be elected, reports of the affairs of the corporation shall be considered and any other business may be transacted which is within the powers of the shareholders. Section 3. NOTICE OF ANNUAL MEETINGS. Written notice of each annual meeting shall be given to each shareholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such shareholder at the address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no address appears on the records of the corporation or is so given, notice shall be deemed to have been given if sent by mail or other means of written communication addressed to the place where the principal executive office of the corporation is situated or if published at least once in some newspaper of general circulation in the county in which such 1 office is located. All such notices shall be sent to each shareholder entitled thereto not less than 10 nor more than 60 days before each annual meeting, and shall specify the place, the day and the hour of such meeting, and shall state those matters which the Board, at the time of mailing of the notice, intends to present for action by the shareholders. If any notice or report addressed to the shareholder at the shareholder's address appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that it is unable to deliver the notice or report to the shareholder, all future notices or reports shall be deemed to have been duly given if they are made available to the shareholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. An affidavit of the mailing or other means of giving notice of any shareholders' meeting shall be executed by the Secretary, Assistant Secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation or with the corporate records. Section 4. SPECIAL MEETINGS. Special meetings of the shareholders, for any purpose or purposes whatsoever, may be called at any time by the Chief Executive Officer, or by the Board of Directors, or by the Chairman of the Board (if any), or by one or more shareholders holding in the aggregate not less than one-tenth of the voting power of the corporation. Notice of such special meeting shall be given in the same manner as for annual meetings of shareholders. Notices of any special meeting shall specify the place, day and hour of such meeting and the general nature of the business to be transacted, and no other business may be transacted. If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by mail or by telegraphic or other facsimile transmission to the Chairman of the Board (if any), the President (if any), the Chief Executive Officer or the Secretary of the corporation. The time specified for such meeting shall be not less than 35 nor more than 60 days after the date of receipt of such request by one of the officers specified in the preceding sentence. The officer receiving the request shall cause notice to be promptly given to all shareholders entitled to vote at such meeting that a meeting will be held at the time requested by the person or persons calling the meeting. Section 5. SPECIAL NOTICE REQUIRED. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of notice to be presented 2 by management for election. If action is proposed to be taken at any meeting to obtain the approval of the shareholders pursuant to Section 310 (transactions between the corporation and one or more of the directors), Section 902 (amendment of the Articles of Incorporation), Section 1201 (reorganization), Section 1900 (voluntary dissolution), or Section 2007 (plan of distribution upon dissolution) of the California General Corporation Law, the notice of meeting shall state the general nature of that proposal. Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares represented thereat either in person or by proxy. It shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which such adjournment is taken; PROVIDED, HOWEVER, that if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. If any meeting is adjourned for more than 45 days from the date set for the original meeting, a new record date shall be fixed or established in accordance with Section 1 of Article VI of these Bylaws. Section 7. VOTING. Subject to the provisions of Sections 702 through 704 of the California General Corporation Law, the only persons entitled to vote at any meeting of the shareholders are those persons in whose names shares entitled to vote stand on the share records of the corporation at the close of business on the record date for voting purposes as fixed or established in accordance with Section 1 of Article VI of these Bylaws. Such vote may be by voice or by ballot; provided, however, that all elections for directors must be by ballot upon demand made by a shareholder at any election and before the voting begins. Subject to the following two sentences, every shareholder entitled to vote at any election for directors shall have the right to cumulate votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shares held by such shareholder are normally entitled, or to distribute votes on the same principle among as many candidates as the shareholder shall think fit. No shareholders shall be entitled to cumulate votes unless such candidate's or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting, prior to the voting, of the shareholder's intention to cumulate votes. If any shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. The candidates receiving the highest number of 3 votes, up to the number of directors to be elected, shall be elected. Section 8. QUORUM. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. If a quorum is present, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or the Articles of Incorporation. Section 9. WAIVER OF NOTICE. The transactions of any meeting of shareholders, either annual or special, however called and noticed and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law to be included in the notice but not so included, if such objection is expressly made at the meeting. The Secretary shall cause all such waivers, consents or approvals to be filed with the corporate records or made a part of the minutes of the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof; PROVIDED, HOWEVER, that any shareholder approval at a meeting, other than by unanimous approval of those entitled to vote, pursuant to those sections of the California General Corporation Law specified in Section 5 of Article II of the Bylaws shall be valid only if the general nature of the proposal so approved is stated in any written waiver of notice. Section 10. SHAREHOLDERS' CONSENT TO ACTION. Any action which, under any provision of the California General Corporation Law, may be taken at a meeting of the shareholders may be taken 4 without a meeting and without prior notice if a consent in writing, setting forth the action taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors; PROVIDED, HOWEVER, that a director may be elected to fill a vacancy on the Board of Directors, however caused, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. The Secretary shall cause all such consents to be filed with the corporate records. Any shareholder giving a written consent, a transferee of such shareholder, a personal representative of such shareholder or their respective proxyholders may revoke the written consent of such shareholder by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. In the case of shareholder approval pursuant to Section 310 (transactions between the corporation and one or more of the directors), Section 317 (indemnification of an officer, director or employee), Section 1201 (reorganization), or Section 2007 (plan of distribution upon dissolution) of the California General Corporation Law, the notice shall be given at least 10 days before the consummation of any action authorized by that approval. Section 11. PROXIES. Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. No proxy shall be valid after the expiration of 11 months from the date of its execution unless otherwise provided in the proxy. Section 12. INSPECTORS OF ELECTION. Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If the Board of Directors does so appoint inspectors of election, it shall determine whether the number of such inspectors shall be one or three. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any person entitled to vote at the meeting shall, appoint inspectors of election at the meeting. If inspectors are appointed by the chairman of the meeting 5 without a request from a person entitled to vote at the meeting, the chairman shall determine if the number of inspectors shall be one or three. If inspectors are appointed at a meeting at the request of one or more persons entitled to vote thereat, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any person entitled to vote at the meeting shall, appoint a person to fill that vacancy. These inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies. (b) Receive votes, ballots or consents. (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote. (d) Count and tabulate all votes or consents. (e) Determine when the polls shall close. (f) Determine the result. (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the limitations of the Articles of Incorporation, these Bylaws and the California General Corporation Law, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation to a management company or any other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Section 2. COMMITTEES OF THE BOARD. The Board of Directors may designate, by resolution adopted by a majority of the authorized number of directors, one or more committees, consisting of two or more directors, to serve at the pleasure of the Board. The Board may designate one or more directors as alternate members of any committee, and such alternate members 6 may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any such committee, to the extent provided in the resolution of the Board, shall have all the authority of the Board except with respect to: (a) The approval of any plan to lend money to, or guarantee any obligation of or otherwise assist any officer or director of the corporation. (b) The approval of any amendment to the Articles of Incorporation after any shares have been issued. (c) The approval of any sale, lease, conveyance, exchange, transfer or other disposition of all or substantially all of the assets of the corporation other than in the usual and regular course of its business. (d) The approval of a plan of reorganization or any amendment thereto. (e) The approval of a plan of distribution upon the winding up of the corporation if both preferred and common shares are outstanding and the plan of distribution is not in accordance with the liquidation rights of the preferred shares as specified in the Articles of Incorporation. (f) The filling of vacancies on the Board or on any committee of the Board. (g) The fixing of compensation of the directors for serving on the Board or on any committee of the Board. (h) The amendment or repeal of Bylaws or the adoption of new Bylaws. (i) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable. (j) A distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the Board. (k) The appointment of other committees of the Board or members thereof. (l) The approval of any action for which the California General Corporation Law also requires 7 shareholders' approval or approval of the outstanding shares. Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Sections 4 (quorum), 7 (place of meetings), 9 (regular meetings), 10 (special meetings and notice), 11 (notice of adjournment), 12 (adjournment), and 14 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee. Special meetings of committees may also be called by resolution of the Board of Directors, and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. Section 3. NUMBER OF DIRECTORS. The authorized number of directors of the corporation shall be no less than one and no more than five, and shall be set by the Board of Directors by adoption of a resolution with respect thereto. Section 4. QUORUM. Except as hereinafter provided, a majority of the then-authorized number of directors shall be necessary to constitute a quorum for the transaction of business. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number be required by law, the Articles of Incorporation or these Bylaws. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors if any action taken is approved by at least a majority of the required quorum for such meeting. Members of the Board may participate in a meeting through the use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting in this manner shall constitute presence in person at such meeting. Section 5. ELECTION AND TERM OF OFFICE. The directors shall be elected at each annual meeting of shareholders, but if any such annual meeting is not held, or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose. All directors shall hold office until their respective successors are elected and qualified. 8 Section 6. RESIGNATIONS, VACANCIES AND REMOVAL. Any director may resign at any time upon written notice to the Corporation. The resignation shall become effective at the time specified in the notice and, unless otherwise provided in the notice, acceptance of the resignation shall not be necessary to make it effective. Vacancies in the Board of Directors, except vacancies created by removal of a director by the shareholders, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until a successor is elected at an annual or a special meeting of the shareholders in accordance with these Bylaws. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. If the Board of Directors accepts the resignation of a director tendered to take effect at a future time, the Board or the shareholders may elect a successor to take office when the resignation is to become effective. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. A vacancy or vacancies in the Board of Directors shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased, or if the shareholders fail at any annual or special meeting of shareholders at which any director or directors are elected to elect the full authorized number of directors to be voted for at that meeting. The Board may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. All the directors, or any individual director or directors, may be removed from office, without cause, by the vote of the shareholders having a majority of the voting power entitling them to elect directors in place of those to be removed. Section 7. PLACE OF MEETING. Regular meetings of the Board of Directors shall be held at any place within or without the State of California which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board may be held at a place so designated, at a place designated in the notice of the meeting or, in the absence of such designation, at the principal executive office. Directors may participate in any meeting, 9 regular or special, through the use of conference telephone or similar communications equipment as provided in Section 4 of this Article III. Section 8. ORGANIZATION MEETING. Immediately following each annual meeting of shareholders, the Board of Directors shall hold a regular meeting for the purpose of organization, election of officers, appointment of an agent of the corporation for service of process and the transaction of other business. Notice of such meeting is hereby dispensed with. Section 9. OTHER REGULAR MEETINGS. Other regular meetings of the Board of Directors shall be held without call at such time as has been designated from time to time by resolution of the Board, or by written consent of all members of the Board. Notice of all such regular meetings of the Board of Directors is hereby dispensed with. Section 10. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the President, the Chairman of the Board, if there is such an officer, any Vice-President, the Secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone or facsimile to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least 96 hours before the time of the holding of the meeting. If the notice is delivered personally, or by facsimile, telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor, if the meeting is to be held at the principal executive office of the corporation, the place of the meeting. No notice need be given to a director who either before or after the meeting signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes of the meeting or who attends the meeting without protesting the lack of proper notice before or at the commencement of the meeting. The Secretary shall cause all such waivers, consents and approvals to be filed with the corporate records or made a part of the minutes of the meeting. Section 11. NOTICE OF ADJOURNMENT. If a meeting is adjourned for more than 24 hours, notice of any adjournment to 10 another time and place shall be given to the directors who were not present at the time of the adjournment. Such notice shall be given prior to the time of the adjourned meeting. Section 12. ADJOURNMENT. A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Section 13. FEES AND COMPENSATION. Directors shall not receive any salary for their services as directors, but, by resolution of the Board, a fixed fee, with or without expenses of attendance, may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation therefor. Section 14. ACTION WITHOUT MEETING. Any action required or permitted to be taken by the Board of Directors under any provision of the California General Corporation Law and under these Bylaws may be taken without a meeting if all of the directors of the corporation shall individually or collectively consent in writing to such action. The Secretary shall cause such written consent or consents to be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as the unanimous vote of such directors. ARTICLE IV OFFICERS Section 1. OFFICERS. The officers of the corporation shall be a Chief Executive Officer, a President, a Secretary and Chief Financial Officer (who may also be called the "Treasurer"). The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as may be elected in accordance with the provisions of Section 3 of this Article IV. One person may hold any two or more offices. Section 2. ELECTION. The officers of the corporation, except such officers as may be elected in accordance with the provisions of Section 3 or Section 5 of this Article IV, shall be elected annually by the Board of Directors, and each shall hold office at the pleasure of the Board until resignation, removal, disqualification or until a successor is elected and qualified. Section 3. SUBORDINATE OFFICERS. The Board of Directors may elect such other officers as the business of the corporation may require, each of whom shall hold office at the pleasure of the Board for such period, have such authority and perform such 11 duties as are provided in the Bylaws or as the Board of Directors may from time to time determine. Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, with or without cause, by a majority of the directors at the time in office at any regular or special meeting of the Board, or, except in case of an officer elected by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors, the Chief Executive Officer or the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for regular election to such office. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there is such an officer, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as from time to time may be assigned by the Board of Directors or prescribed by the Bylaws. Section 7. CHIEF EXECUTIVE OFFICER. Subject to the supervisory powers, if any, delegated by the Board of Director to the Chairman of the Board, if there is such an officer, the Chief Executive Officer shall be the chief executive officer of the corporation. The Chief Executive Officer shall supervise, direct and control the President, and shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there is not such an officer, at all meetings of the Board of Directors. The Chief Executive Officer President shall be an ex officio member of all of the standing committees of the Board, including the executive committee, if any. Section 8. PRESIDENT. Subject to the supervisory powers of the Chief Executive Officer and the control of the Board of Directors, the President shall be the general manager and chief operating officer of the corporation and shall have general supervision, direction and control of the business and officers of the corporation. The President shall be an ex officio member of all of the standing committees of the Board, including the executive committee, if any. The President shall also have the general powers and duties of management usually vested in the office of the president of a corporation and shall have such 12 other powers and duties as from time to time may be prescribed by the Board of Directors or the Bylaws. Section 9. SECRETARY. The Secretary shall keep or cause to be kept a book of minutes at the principal executive office or such other place as the Board of Directors may order of all meetings of the Board of Directors, committees of the Board and shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings and the proceedings thereof. Such minutes shall be kept in written form. The Secretary shall keep or cause to be kept at the principal executive office or at the office of the corporation's transfer agent, as determined by resolution of the Board of Directors, a share register or a duplicate share register showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. Such record shall be kept either in written form or in any other form capable of being converted into written form. The Secretary shall give or cause to be given notice of all of the meetings of the shareholders and of the Board of Directors required by the Bylaws or by law to be given, shall keep the seal of the corporation, if there is one, in safe custody and shall have such other powers and perform such other duties as from time to time may be prescribed by the Board of Directors or the Bylaws. Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer (who may also be called the "Treasurer") shall keep and maintain or cause to be kept and maintained adequate and correct books and records of account of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall be open to inspection by any director at all reasonable times. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of the transactions of the Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such 13 other duties as from time to time may be prescribed by the Board of Directors or the Bylaws. ARTICLE V INDEMNIFICATION Section 1. EXTENT. The corporation shall, to the fullest extent permitted by the California General Corporation Law, indemnify each director, officer, employee and agent of the corporation and all other persons whom the corporation is authorized to indemnify (other than fiduciaries of any employee benefit plan in their capacity as such fiduciaries) against (a) all expenses (including, without limitation, attorneys' fees and disbursements), judgments, fines, settlements and other amounts actually and reasonably incurred by such person in connection with any threatened, pending or completed action, suit or proceeding (other than an action or suit by or in the right of the corporation to procure a judgment in its favor), whether civil, criminal, administrative or investigative, or in connection with any appeal therein, or otherwise, and (b) all expenses (including, without limitation, attorneys' fees and disbursements) actually and reasonably incurred by such person in connection with the defense or settlement of any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor, or in connection with any appeal therein, or otherwise. Section 2. FIDUCIARIES OF EMPLOYEE BENEFIT PLANS. The corporation shall have the power to indemnify any trustee, investment manager or other fiduciary of any employee benefit plan established by the corporation to the fullest extent permitted by law. Section 3. CONSTRUCTION OF BYLAWS. No provision of these Bylaws shall be construed as prohibiting, denying or abrogating any of the general or specific powers or rights conferred by the California General Corporation Law upon the corporation or any court to furnish or award indemnification as otherwise authorized by the California General Corporation Law or any other law now or hereafter in effect. ARTICLE VI MISCELLANEOUS Section 1. RECORD DATE. The Board of Directors may fix, in advance, a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders or entitled to receive any dividend or distribution, or any allotment of rights, or to exercise any rights in respect to any other lawful action. The record date so fixed shall be not more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action. 14 If no record date is fixed by the Board of Directors, the record date shall be determined as provided in this paragraph. The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day immediately preceding the day on which notice is given or, if notice is waived, at the close of business on the business day immediately preceding the day on which the meeting is held. The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given. The record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action, whichever is later. Except as otherwise provided in the California General Corporation Law, only shareholders of record as of the record date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution or allotment of rights or to exercise the rights as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting. The Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. Section 2. INSPECTION OF CORPORATE RECORDS. A shareholder or shareholders of the corporation holding at least five percent in the aggregate of the outstanding voting shares of the corporation may (i) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours on five days' prior written demand on the corporation and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of shareholders who are entitled to vote for the election of directors, and the shareholdings of such shareholders, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. This list shall be made available to any such shareholder by the transfer agent on or before the later of five business days after the demand is received or the date specified in the demand as the date as of which the list is to be compiled. 15 The share register or duplicate share register, the books of account and minutes of proceedings of the shareholders and the Board of Directors and of committees of directors shall be open to inspection upon the written demand of any shareholder or the holder of a voting trust certificate, at any reasonable time, if for a purpose reasonably related to such holder's interests as a shareholder or as the holder of such voting trust certificate. Such inspection may be made in person or by agent or attorney, and shall include the right to make copies or extracts. Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents. Section 3. INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in the State of California, the original or a copy of the Bylaws as amended to date, which shall be open to inspection by any shareholder at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in the State of California, the Secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of the Bylaws as amended to date. Section 4. CHECKS, DRAFTS. All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as from time to time shall be determined by resolution of the Board of Directors. Section 5. ANNUAL REPORT. The annual report to shareholders referred to in Section 1501 of the California General Corporation Law is hereby dispensed with, but the Board of Directors may cause to be sent to the shareholders annual or other periodic reports in such form as they may deem appropriate. Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the principal executive office of the corporation for 12 months, and each such statement shall be exhibited at all reasonable times to any shareholder demanding an 16 examination of any such statement or a copy shall be mailed to any such shareholder. A shareholder or shareholders holding at least five percent in the aggregate of the outstanding shares of any class of the corporation may make a written request for an income statement of the corporation for the three-month, six-month or nine-month period (of the then current fiscal year) ended more than 30 days prior to the date of the request and a balance sheet of the corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, an annual report for the last fiscal year containing the statements required by Section 1501 (a) of the California General Corporation Law. If such a request is made, the Chief Financial Officer shall cause the requested statement or statements to be prepared, if not already prepared, and shall deliver personally or mail the statement or statements to the person making the request within 30 days after the receipt of the request. The corporation shall also, on the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual, or quarterly income statement which it has prepared, and a balance sheet as of the end of that period. The quarterly income statements and balance sheets referred to in this Section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. Section 7. CONTRACTS, HOW EXECUTED. The Board of Directors, except as otherwise provided in the Bylaws, may authorize any officer, officers, agent or agents to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. If any person, acting without such authority, causes the corporation to be liable to any third person by virtue of California General Corporation Law Section 313, the corporation may seek to hold such person liable to the corporation. Section 8. SHARE CERTIFICATES. A share certificate or certificates of the corporation shall be issued to each shareholder when any such shares are fully paid. All such certificates shall be signed by the Chairman of the Board, if there is such an officer, or the Chief Executive Officer or the President and by the Chief Financial Officer or any Assistant Treasurer or the Secretary or any Assistant Secretary. Any or all of the signatures on the certificate may be facsimile. 17 Certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the Board of Directors or the Bylaws may provide; provided, however, that any such certificate so issued prior to full payment shall state the total amount of consideration to be paid therefor and the amount paid thereon. Section 9. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, if there is such an officer, the President, any Vice-President or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers is authorized to vote on behalf of the corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of the corporation. The authority granted to such officers to vote or represent on behalf of the corporation any and all shares held by the corporation of any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers. Section 10. AMENDMENTS. These Bylaws may be amended or repealed either by approval of the outstanding shares or by the approval of the Board of Directors; provided, however, that a bylaw specifying or changing a fixed number or the maximum or minimum number of directors or changing from a fixed to a variable number of directors or vice versa may be adopted only by approval of the outstanding shares complying, if applicable, with Section 212 of the California General Corporation Law. 18 EX-3.12-1 22 EXHIBIT 3.12.1 BOOK 87 PAGE 376 PATS, INC. A CLOSE CORPORATION ARTICLES OF INCORPORATION THIS IS TO CERTIFY: That I, the undersigned, Harvey O. Patrick, whose post office address is 5229 Windmill Lane, Columbia, Howard County, Maryland 21044, being at least eighteen (18) years of age do hereby form a corporation under the general laws of the State of Maryland. FIRST: That the name of the Corporation (which is hereafter called the "Corporation") is: PATS, INC. SECOND: The Corporation shall be a close corporation as authorized by the Annotated Code of Maryland, Corporations and Associations, and shall exist as same until such time as the stockholders by unanimous consent shall file Articles of Amendment to change such status. THIRD: The purposes for which the Corporation is formed are as follows: (a) To carry on research and development and provide consulting services for aircraft and affiliated industries; to develop and hold workshops, develop and write guidelines, and provide management services. (b) To provide maintenance and construction services for aircraft and affiliated industries. (c) To do everything necessary, proper, advisable or convenient for the accomplishment of the foregoing purposes, and to do all other things incidental or connected with them which are not forbidden by governing law or by the Annotated Code of Maryland, Corporations and Associations. FOURTH: The post office address of the principal office of the Corporation in Maryland is P.O. Box 8686 Baltimore/Washington International Airport, Anne Arundel County, Maryland 21240. The name and post office address of the resident agent of the Corporation in Maryland is Harvey O. Patrick, 5229 Windmill Lane, Columbia, Howard County, Maryland 21044. Said Resident Agent is an adult citizen of Maryland and actually resides therein. -1- FIFTH: The total number of shares of stock which the Corporation has authority to issue is 100,000 shares of the par value of $1.00 per share, all of one class and having an aggregate par value of One Hundred Thousand Dollars ($100,000.00). SIXTH: The number of directors of the Corporation shall be one (1), which number may be increased or decreased pursuant to the by-laws of the Corporation, but shall never be less than one. The name of the director who shall act until the first annual meeting or until his successor is duly chosen and qualified is: Harvey O. Patrick SEVENTH: The duration of the Corporation shall be perpetual. IN WITNESS WHEREOF, I have signed these Articles of Incorporation this 27th day of August, 1976 and acknowledge the same to be my act. WITNESS: /s/ [ILLEGIBLE] /s/ Harvey O. Patrick - ------------------------------- --------------------------------- Harvey O. Patrick -2- EX-3.12-2 23 EXHIBIT 3.12.2 PATS, INC. BY-LAWS ARTICLE I. STOCKHOLDERS SECTION 1.01. ANNUAL MEETINGS. The Corporation shall hold each year, commencing with the year 1977, an annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation, on the second Friday of September in each year if not a legal holiday, and if a legal holiday, then on the first day following which is not a Sunday or a legal holiday. Any business of the Corporation may be transacted at an annual meeting without being specially designated in the notice, except such business as is specifically required by statute or by the charter to be stated in the notice. Failure to hold an annual meeting at the designated time shall not, however, invalidate the corporation existence or affect otherwise valid corporate acts. SECTION 1.02. SPECIAL MEETINGS. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the President or by a majority of the Board of Directors by vote at a meeting or in writing with or without a meeting. SECTION 1.03. PLACE OF MEETINGS. All meetings of stockholders shall be held at the principal office of the Corporation in Howard County, Maryland, except in cases in which the notice thereof designates dome other place; but all such meetings shall be held within the State of Maryland. SECTION 1.04. NOTICE OF MEETINGS. Not less than ten days nor more than ninety days before the date of every stockholders' meeting, the Secretary shall give to each stockholder entitled to vote at such meeting, written or oral notice stating the time and place of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provision, a waiver of notice in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such persons. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 1.05. VOTES REQUIRED. Actions required to be voted on by the stockholders in accordance with the "Corporation and Association" Article of the Maryland Annotated Code, shall be passed by the majority vote of stockholders entitled to vote. 2. SECTION 1.06. LIST OF STOCKHOLDERS. At each meeting of stockholders a full, true and complete list in alphabetical order, or in alphabetical order by classes of stock, or all stockholders entitled to vote at such meeting, certifying the number of class of shares held by each, shall be furnished by the Secretary. SECTION 1.07. VOTING FOR DIRECTORS. Directors shall be elected by the majority vote of all stockholders entitled to vote. Each stockholder will have one and only one vote (cumulative voting is prohibited) for each position on the Board of Directors for which an election is being held. ARTICLE II. BOARD OF DIRECTORS SECTION 2.01. POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except such as are by statute or the charter or by By-Laws conferred upon or reserved to the stockholders. The Board of Directors shall keep full and fair accounts of its transactions. SECTION 2.02. NUMBER OF DIRECTORS. The number of directors of the Corporation shall be FOUR (4). By vote of three which constituted a majority of the entire Board of Directors, the number of directors may be increased or decreased, from time to time, to not exceeding twenty nor less than three directors. SECTION 2.03. ELECTION OF DIRECTORS. Until the first annual meeting of a stockholders or until successors are duly elected and qualify, the Board shall consist of the persons named as such in the Charter. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors to hold office until the next succeeding annual meeting or until their successors are elected and qualify. At any meeting of stockholders, duly called, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. SECTION 2.04. VACANCIES. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, even if such remaining members do not constitute a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors. A director elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualifies. SECTION 2.05. REGULAR MEETINGS. After each meeting of stockholders at which a Board of Directors shall have been elected, the board of Directors so elected shall meet as soon as practicable for the purpose of organization and the transaction of other business at such time as may be designated by the stockholders at such meeting. The first meeting shall be held at the place designated by the Board of Directors for such first regular meeting or at the office of the Corporation in Howard county, Maryland. No notice of such first meeting shall be necessary if held as hereinabove provided. Other regular meetings of the Board of 3. Directors shall be held on such dates and at such places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the President or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. Such special meetings shall be held at such place or places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.07. NOTICE OF MEETINGS. Except as provided in Section 2.05, notice of he place, day and hour of every regular and special meeting shall be given to each Director two days (or more) before the meeting, by delivering the same to him personally, or by sending the same to him by telegraph, or by leaving the same at his residence or usual place of business, or, in the alternative, by mailing such notice three days (or more) before the meeting, postage prepaid, and addressed to him at his last known post office address, according to the records of the Corporation. Unless required by these By-Laws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need be given to any Director who attends, or to any Director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 2.08. QUORUM. At all meetings of the Board of Directors the presence of a two-thirds majority of the entire Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which it is by statute, by the Charter or by the By-Laws otherwise provided, the vote of a simple majority of such quorum at a duly constituted meeting shall be sufficient to elect and pass any measure. In the absence of a quorum, the Directors present by majority vote and without notice other than by announcement may adjourn the meeting from time to time until a quorum shall attend. SECTION 2.09. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Committee. ARTICLE III. OFFICERS SECTION 3.01. EXECUTIVE OFFICERS. The Board of Directors shall choose a President from among the Directors; and a Secretary and a Treasurer who need not be directors. The Board of Directors may choose one or more Vice Presidents. Any two or more of the above-mentioned offices, except those of President and a Vice President, may be held by the same person; but no officer shall execute, acknowledge or verify any Instructrument in more than one capacity. If such instrument be required by statute, by the Charter, by the By-Laws or by resolution of the Board of Directors to be executed, acknowledged or verified by any two or more officers. Each such officer shall hold office until the first meeting of the 4. Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor shall have been duly chosen and qualified, or until he shall have resigned or shall have been removed. Any vacancy in any of the above offices may be filled for the unexpired portion of the term of the Board of Directors at any regular or special meeting. SECTION 3.02. PRESIDENT. The President shall preside at all meetings of the stockholders and of the Board of Directors at which he shall be present; he shall have general charge and supervision of the business of the Corporation; he may sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and, in general, he shall perform all duties incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors. SECTION 3.03. VICE PRESIDENTS. The Vice President or Vice Presidents, at the request of the President or in his absence or during his inability to act, shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there be more than one Vice President, the President may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions; otherwise any of the Vice Presidents may perform any of such duties or exercise any of such functions. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned to him or them by the Board of Directors or the President. SECTION 3.04. SECRETARY. The Secretary shall keep the minutes of the meetings of stockholders, of the Board of Directors, and of any committees, in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of the By-Laws or as required by law; he shall be custodian of the records of the Corporation; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors or the President. SECTION 3.05. TREASURER. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; he shall render to the President and to the Board of Directors whenever requested, an account of the financial condition of the Corporation, and, in general, he shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as may be assigned to him by the Board of Directors or the President. SECTION 3.06. SUBORDINATE OFFICERS. The Board of Directors may from time to time appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period and perform such duties as the Board of Directors or the President may prescribe. The Board of Directors, may from time to time authorize any committee or officer to appoint and remove subordinate officers and prescribe the duties thereof. SECTION 3.07. COMPENSATION. The Board of Directors shall have power to fix the compensation of all officers of the Corporation. 5. SECTION 3.08. REMOVAL. Any officer or agent of the Corporation may be removed by the Board of Directors whenever, in its judgement, the best interest of the Corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. ARTICLE IV. STOCK SECTION 4.01. CERTIFICATES. Each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and kind of shares of stock owned by him in the Corporation. Such certificates shall be signed by the President or a Vice President and countersigned by the Secretary or the Treasurer. Stock certificates shall be in such form, not inconsistent with law or with the Charter, as shall be approved by the Board of Directors. In case any officer of the Corporation who has signed any certificate ceases to be an officer of the Corporation, whether because of death, resignation or otherwise, before such certificate is issued, the certificate may nevertheless be issued and delivered by the Corporation as if the officer had not ceased to be such officer as of the date of its issue. SECTION 4.02. TRANSFERS. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue and transfer of certificates of stock. SECTION 4.03. STOCK LEDGERS. Original or duplicate stock ledgers, containing the names and addresses of the stockholders of the Corporation and the number of shares of each class held by them respectively, shall be kept at an office of the Corporation. SECTION 4.04. RECORD DATES. The Board of Directors is hereby empowered to fix, in advance, a date as the record date of the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. SECTION 4.05. NEW CERTIFICATES. In case any certificate of stock is lost, stolen, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof upon such terms and conditions as it may deem advisable; or the Board of Directors may delegate such power to any officer or officers of the Corporation; but the Board of Directors or such officer or officers, in their discretion, may refuse to issue such new certificate save upon the order of some court having jurisdiction in the premises. ARTICLE V. FINANCE SECTION 5.01. CHECKS, DRAFTS, ETC. Checks, drafts, and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in the amount of One Hundred Thousand Dollars ($100,000) or less, shall, unless otherwise provided by resolution of the Board of Directors, be signed by either the President, Vice President of Finance or the Treasurer. 6. Checks, drafts, and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in an amount in excess of One Hundred Thousand Dollars ($100,000), shall, unless otherwise provided by resolution of the Board of Directors, be signed by both the President, Vice President of Finance or the Treasurer jointly. SECTION 5.02. ANNUAL REPORTS. There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of the Board of Directors and filed within twenty days thereafter at the principal office of the Corporation in this State. ARTICLE VI. SUNDRY PROVISIONS SECTION 6.01. AMENDMENTS. Any and all provisions of these By-Laws may be altered or repealed and new By-Laws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose. In addition, the Board of Directors shall have the power at any regular or special meeting thereof, to make and adopt new by-laws or to amend, alter or repeal any by-law of the Corporation. EX-3.12-3 24 EXHIBIT 3.12.3 Amendment to Articles of Incorporation of PATS, INC. a Maryland Close Corporation THIS IS TO CERTIFY that the undersigned, being the sole stockholder (there being no holders of subscriptions for stock) of PATS, INC., a Maryland close corporation (the "Corporation"), amends the Articles of Incorporation for the Corporation, filed with the Department of Assessments and Taxation of the State of Maryland (the "SDAT") on August 27, 1976 in Film 2314, at folio 0526 (the "Articles"), as follows: Article SECOND thereof, electing to be a close corporation as set out in the Corporations and Associations Article of the Annotated Code of Maryland (the "Act") is hereby deleted, the sole stockholder having determined, by action in lieu of a meeting taken after waiver of any right to statutory notice, under the Act or the bylaws of the Corporation, all pursuant to Section 2-505 of the Act. Attached hereto is a copy of the Action of the Sole Stockholder in lieu of a Meeting, authorizing the Amendment to the Articles. All other terms and provisions of the Articles, except as specifically modified hereby are hereby readopted and affirmed. IN WITNESS WHEREOF, the undersigned duly authorized corporate officer of the sole stockholder of PATS, INC. has executed these Articles of Amendment and acknowledge them to be the act of the said sole stockholder, as of this 22nd day of January, 1999. WITNESS DeCrane Aircraft Holdings, Inc. Sole Shareholder /s/ Steve Tepper By: /s/ John R. Hinson (SEAL) - --------------------------- ----------------------------- Steve Tepper John R. Hinson Chief Financial Officer EX-3.12-4 25 EX3.12.4 AMENDMENT TO BY-LAWS OF PATS, INC. The undersigned, being the sole shareholder of PATS, Inc., a Maryland corporation, hereby amends the By-Laws of the Corporation as follows: a. by deleting from Article III Section 3.01. EXECUTIVE OFFICERS the words "from among the Directors;" from the second line thereof. b. by adding the following sentence between the first and second sentence thereof: The Board of Directors may also elect a chief executive officer and a chief financial officer, each to perform such duties as may be ascribed to the office by the Board of Directors. In all other respects the By-Laws shall remain unchanged. This Amendment has been adopted by the sole shareholder in lieu of a special meeting called for that purpose pursuant to Section 2-408(c) of the Corporations and Associations Article of the MARYLAND ANNOTATED CODE (1993 Repl. Vol., as amended). WITNESS: DeCrane Aircraft Holdings, Inc. Sole Shareholder /s/ Steve Tepper By: /s/ John R. Hinson - ---------------------- ------------------------ (SEAL) Steve Tepper John R. Hinson Chief Financial Officer EX-3.13-1 26 EXHIBIT 3.13.1 FLIGHT REFUELING, INC. A CLOSE CORPORATION ARTICLES OF INCORPORATION THIS IS TO CERTIFY: That I, the undersigned, Richard L. Scott, whose post office address is 103 Talloway Court, Sykesville, Carroll County, Maryland 21784, being at least eighteen (18) years of age do hereby form a corporation under the general laws of the State of Maryland. FIRST: That the name of the Corporation (which is hereafter called the "Corporation" is: FLIGHT REFUELING, INC. SECOND: The Corporation shall be a close corporation as authorized by the Annotated Code of Maryland, Corporations and Associations, and shall exist as same until such time as the stockholders by unanimous consent shall file Articles of Amendment to change such status. THIRD: The purposes for which the Corporation is formed are as follows: (a) To carry on research and development and provide consulting services for aircraft and affiliated industries and government contracts; to develop and hold workshops, develop and write guidelines, and provide Management services. (b) To provide maintenance and construction services for aircraft and affiliated industries, and government agencies. (c) To do everything necessary, proper, advisable or convenient for the accomplishment of the foregoing purposes, and to do all other things incidental or connected with them which are not forbidden by governing law or by the Annotated Code of Maryland, Corporations and Associations. FOURTH: The post office address of the principal office of the Corporation in Maryland is 7190-8 Oakland Mills Road, Howard County, Maryland 21046. The name and post office address of the resident agent of the Corporation in Maryland is Richard L. Scott, 103 Talloway Court, Carroll County, Maryland 21784. Said Resident Agent is an adult citizen of Maryland and actually resides therein. -1- FIFTH: The total number of shares of stock which the Corporation has authority to issue is 10,000 shares of the par value of $1.00 per share, all of one class and having an aggregate par value of Ten Thousand Dollars ($10,000). SIXTH: The number of directors of the Corporation shall be one (1), which number may be increased or decreased pursuant to the by-laws of the Corporation, but shall never be less than one. The name of the director who shall act until the first annual meeting or until his successor is duly chosen and qualified is: Richard L. Scott SEVENTH: The duration of the Corporation shall be perpetual. IN WITNESS WHEREOF, I have signed these Articles of Incorporation this 27th day of February, 1978, and acknowledge the same to be my act. WITNESS: /s/ Kay P. Abernethy /s/ Richard L. Scott - -------------------------------- --------------------------------- Kay P. Abernethy Richard L. Scott -2- FLIGHT REFUELING, INC. approved and received for record be the State Department of Assessments and Taxation of Maryland March 9, 1978, at 8:30 o'clock A.M. as in conformity with law and ordered recorded: 3 ------------------ Recorded in Liber 2409, folio 000627, one of the Charter Records of the State Department of Assessments and Taxation of Maryland. ------------------ Bonus tax paid $20.00 Recording fee paid $15.00 Special Fee paid $ ----- ------------------ To the clerk of the Circuit Court of Howard County IT IS HEREBY CERTIFIED, that the within instrument, together with all indorsements thereon, has been received, approved and recorded by the State Department of Assessments and Taxation of Maryland. AS WITNESS my hand and seal of the said Department at Baltimore. /s/ William J. Simmons ----------------------------- William J. Simmons [STAMP] EX-3.13-2 27 EXHIBIT 3.13.2 FLIGHT REFUELING, INC. BY-LAWS ARTICLE 1. STOCKHOLDERS SECTION 1.01. ANNUAL MEETINGS. The Corporation shall hold each year, commencing with the year 1978, an annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation, on the second Friday of September in each year if not a legal holiday, and if a legal holiday, then on the first day following which is not a Sunday or a legal holiday. Any business of the Corporation may be transacted at an annual meeting without being specially designated in the notice, except such business as is specifically required by statute or by the charter to be stated in the notice. Failure to hold an annual meeting at the designated time shall not, however, invalidate the corporation existence or affect otherwise valid corporate acts. SECTION 1.02. SPECIAL MEETINGS. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the President or by a majority of the Board of Directors by vote at a meeting or in writing with or without a meeting. SECTION 1.03. PLACE OF MEETINGS. All meetings of stockholders shall be held at the principal office of the Corporation in Howard County, Maryland, except in cases in which the notice thereof designates some other place; but all such meetings shall be held within the State of Maryland. SECTION 1.04. NOTICE OF MEETINGS. Not less than ten days nor more than ninety days before the date of every stockholders' meetings, the Secretary shall give to each stockholder entitled to vote at such meeting, written or oral notice stating the time and place of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States Mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provision, a waiver of notice in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting in person or by proxy. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. 2. SECTION 1.05. VOTES REQUIRED. Actions required to be voted on by the stockholders in accordance with the "Corporation and Association" Article of the Maryland Annotated Code, shall be passed by the majority vote of stockholders entitled to vote. SECTION 1.06. LIST OF STOCKHOLDERS. At each meeting of stockholders a full, true and complete list in alphabetical order, or in alphabetical order by classes of stock, or all stockholders entitled to vote at such meeting, certifying the number and class of shares held by each, shall be furnished by the Secretary. SECTION 1.07. VOTING FOR DIRECTORS. Directors shall be elected by the majority vote of all stockholders entitled to vote. Each stockholder will have one and only one vote (cumulative voting is prohibited) for each position on the Board of Directors for which an election is being held. ARTICLE II. BOARD OF DIRECTORS SECTION 2.01. POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except such as are by statute or the charter or by By-Laws conferred upon or reserved to the stockholders. The Board of Directors shall keep full and fair accounts of its transactions. SECTION 2.02. NUMBER OF DIRECTORS. The number of directors of the Corporation shall be FOUR (4). By vote of three which constitute a majority of the entire Board of Directors, the number of directors may be increased or decreased, from time to time, to not exceeding twenty nor less than three directors. SECTION 2.03. ELECTION OF DIRECTORS. Until the first annual meeting of stockholders or until successors are duly elected and qualify, the Board shall consist of the persons named as such in the Charter. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors to hold office until the next succeeding annual meeting or until their successors are elected and qualify. At any meeting of stockholders, duly called, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. SECTION 2.04. VACANCIES. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, even if such remaining members do not constitute a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualifies. 3. SECTION 2.05. REGULAR MEETINGS. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose or organization and the transaction of other business at such time as may be designed by the stockholders at such meeting. The first meeting shall be held at the place designated by the Board of Directors for such first regular meeting or at the office of the Corporation in Howard County, Maryland. No notice of such first meeting shall be necessary if held as hereinabove provided. Other regular meetings of the Board of Directors shall be held on such dates and at such places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the President or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. Such special meetings shall be held at such place or places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.07. NOTICE OF MEETINGS. Except as provided in Section 2.05, notice of the place, day and hour of every regular and special meeting shall be given to each Director two days (or more) before the meeting, by delivering the same to him personally, or by sending the same to him by telegraph, or by leaving the same at his residence or usual place of business, or, in the alternative, by mailing such notice three days (or more) before the meeting, postage prepaid, and addressed to him at his last known post office address, according to the records of the Corporation. Unless required by these By-Laws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need by given to any Director who attends, or to any Director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need by given of any such adjourned meeting other than by announcement. SECTION 2.08. QUORUM. At all meetings of the Board of Directors the presence of a two-thirds' majority of the entire Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which it is by stature, by the Charter or by the By-Laws otherwise provided, the vote of a simple majority of such quorum at a duly constituted meeting shall be sufficient to elect and pass any measure. In the absence of a quorum, the Directors present by majority vote and without notice other than by announcement may adjourn the meeting from time to time until a quorum shall attend. SECTION 2.09. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. 4. ARTICLE III OFFICERS SECTION 3.01. EXECUTIVE OFFICERS. The Board of Directors shall choose a President from among the Directors, and a Secretary and a President who need not be directors. The Board of Directors may choose one or more Vice Presidents. Any two or more of the above-mentioned offices, except those of President and a Vice President, may be held by the same person; but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument be required by statute, by the Charter, by the By-Laws or by resolution of the Board of Directors to be executed, acknowledged or verified by any two or more officers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor shall have been duly chosen and qualified, or until he shall have resigned or shall have been removed. Any vacancy in any of the above offices may be filled for the unexpired portion of the term of the Board of Directors at any regular or special meeting. SECTION 3.02. The President shall preside at all meetings of the stockholders and of the Board of Directors at which he shall be present; he shall have general charge and supervision of the business of the Corporation; he may sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and, in general, he shall perform all duties incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors. SECTION 3.03. VICE PRESIDENTS. The Vice President or Vice Presidents, at the request of the President or in his absence or during his inability to act, shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there by more than one Vice President, the President may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions; otherwise any of the Vice Presidents may perform any of such duties or exercise any of such functions. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned to him or them by the Board of Directors or the President. SECTION 3.04. SECRETARY. The Secretary shall keep the minutes of the meetings of stockholders, of the Board of Directors, and of any committees, in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of the By-Laws or as required by law; he shall be custodian of the records of the Corporation; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors or by the President. 6. SECTION 4.04. RECORD DATES. The Board of Directors is hereby empowered to fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. SECTION 4.05. NEW CERTIFICATES. In case of any certificate of stock is lost, stolen, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof upon such terms and conditions as it may deem advisable; or the Board of Directors may delegate such power to any officer or officers, in their discretion, may refuse to issue such new certificate save upon the order of some court having jurisdiction in these premises. ARTICLE V. FINANCE SECTION 5.01. CHECKS, DRAFTS, ETC. Checks, drafts, and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in the amount of Fifty Thousand Dollars ($50,000) or less, shall, unless otherwise provided by resolution of the Board of Directors, be signed by either the President, Vice President-Finance, or the Treasurer. Checks, drafts and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in an amount in excess of Fifty Thousand Dollars ($50,000), shall, unless otherwise provided by resolution of the Board of Directors, be signed by both the President, Vice President-Finance, or the Treasurer jointly. SECTION 5.02. ANNUAL REPORTS. There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding financial year, which shall be submitted at the annual meeting of the Board of Directors and filed within twenty days thereafter at the principal office of the Corporation in this State. ARTICLE VI. SUNDRY PROVISIONS SECTION 6.01. AMENDMENTS. Any and all provisions of the By-Laws may be altered or repealed and new By-Laws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose. In addition, the Board of Directors shall have the power, at any regular or special meeting thereof, to make and adopt new by-laws or to amend, alter or repeal any by-law of the Corporation. AMENDMENT TO BY-LAWS OF FLIGHT REFUELING, INC. The undersigned, being the sole shareholder of Flight Refueling, Inc., a Maryland corporation, hereby amends the By-Laws of the Corporation as follows: a. by deleting from Article III Section 3.01. EXECUTIVE OFFICERS the words "from among the Directors;" from the second line thereof. b. by adding the following sentence between the first and second sentence thereof: The Board of Directors may also elect a chief executive officer and a chief financial officer, each to perform such duties as may be ascribed to the office by the Board of Directors. In all other respects the By-Laws shall remain unchanged. This Amendment has been adopted by the sole shareholder in lieu of a special meeting called for that purpose pursuant to Section 2-408(c) of the Corporations and Associations Article of the MARYLAND ANNOTATED CODE (1993 Repl. Vol., as amended). WITNESS: PATS, Inc., a Maryland corporation Sole Shareholder /s/ Steve Tepper By: /s/ John R. Hinson - -------------------- ----------------------- (SEAL) Steve Tepper John R. Hinson Chief Financial Officer EX-3.14-1 28 EXHIBIT 3.14.1 ARTICLES OF INCORPORATION OF PATRICK AIRCRAFT TANK SYSTEMS, INC. WE, the undersigned HARVEY O. PATRICK, whose post office address is 5229 Windmill Lane, Columbia, Maryland 21044, RICHARD L. SCOTT, whose post office address is 103 Talloway Court, Sykesville, Maryland 21784 and LAWRENCE G. SMITH, JR. whose post office address is 10 Lefferts Ct., Middletown, N.J. 07748, each being at least twenty-one years of age, do hereby associate ourselves as incorporators with the intention of forming a corporation under and by virtue of the general laws of the State of Maryland. ARTICLE I - NAME The name of the Corporation, hereinafter called the Corporation, is PATRICK AIRCRAFT TANK SYSTEMS, INC. ARTICLE II - PURPOSES The general nature of its business, and the purposes for which the Corporation is formed, are as follows: FIRST: The specific business in which the corporation is primarily to engage is the manufacture, purchasing, sale, design, and service of aircraft fuel systems. SECOND: To engage in the manufacture, purchase and sale of aircraft parts and equipment, and as such to service, manufacture, hold, purchase or otherwise acquire, buy and sell both retail and wholesale, produce, secure, receive, procure, make or otherwise dispose of, and generally deal in aircraft equipment and supplies of all types and to conduct such business either for its own account or as agent, factor, broker, middleman, commission man or representative of others. THIRD: To apply for, obtain, purchase, or otherwise acquire any patents, copyrights, licenses, trademarks, tradenames, rights, processes, formulae and the like which might be used for any of the purposes of the Corporation; and to use, exercise, develop, grant licenses in respect of, sell and otherwise turn to account the same. -1- [____] part of the property, rights, businesses, contracts, goodwill, franchises and assets of every kind of any corporation, co-partnership or individual (including the estate of a decedent), carrying on or having carried on in whole or in part any of the aforesaid businesses or any other businesses that the Corporation may be authorized to carry on, and to undertake, guarantee, assume and pay the indebtedness and liabilities thereof, and to pay for any such property, rights, business, contracts, goodwill, franchises or assets by the issue, in accordance with the laws of Maryland of stock, bonds or other securities of the Corporation or otherwise. FIFTH: To acquire by purchase, or lease, or otherwise, lands and interests in lands and to own, hold, improve, develop, and manage any real estate so acquired and to erect or cause to be erected on any lands owned, held or occupied by the Corporation buildings or other structures with their appurtenances and to rebuild, enlarge, alter or improve any buildings or other structures now or hereafter erected an any lands so owned, held or occupied and to mortgage, sell, lease or otherwise dispose of any lands or interests in lands and in buildings or other structures and any stores, shops, suites, rooms or parts of any buildings or other structures at any time or held by the Corporation. SIXTH: To manage, sell, assign, transfer, lease, mortgage, pledge or otherwise dispose of or turn to account or deal with all or any part of the property of the Corporation, and from time to time to vary any investment or employment of capital of the Corporation. SEVENTH: To carry on and transact for itself or for account of others the business of general merchants, general agents, manufacturers, buyers and sellers of or dealers in natural products, raw materials, manufactured products, marketable goods, wares and merchandise of every description. -2- EIGHTH: To purchase or otherwise acquire, hold and reissue shares of its capital stock of any class; and to purchase, hold, sell, assign, transfer, exchange, lease, mortgage, pledge or otherwise dispose of any shares of stock or of voting trust certificates for any shares of stock of or any bonds or other securities or evidences of indebtedness issued or created by any other corporation or association organized under the laws of the State of Maryland or of any other state, territory, district, colony or dependency of the United States of America or of any foreign country and while the owner or holder of any such shares of stock, voting trust certificates, bonds or other obligations to possess and exercise in respect thereof any and all rights, powers and privileges of ownership including the right to vote on any shares of stock so held or owned and upon a distribution of the assets or a division of the profits of this Corporation, to distribute any such shares of stock, voting trust certificates, bonds or other obligations or the proceeds thereof among the stockholders of this Corporation. NINTH: To carry out all or any part of the aforesaid purposes and to conduct its business in all or any of its branches in any or all states, territories, districts, colonies and dependencies of the United States of America and in foreign countries and to maintain offices and agencies in any or all states, territories, districts, colonies and dependencies of the United States of America and in foreign countries. The aforegoing enumeration of the purposes, objects and business of the Corporation is made in furtherance and not in limitation of the powers conferred upon the Corporation by law and is not intended by the mention of any particular purpose, object or business in any manner to limit or restrict the generality of any other purpose, object or business mentioned or to limit or restrict any of the powers of the Corporation. The Corporation is formed upon the articles, conditions and provisions herein expressed and subject in all particulars to the limitations relative to corporations which are contained in the general laws of this State. -3- ARTICLE III - ADDRESS AND RESIDENT AGENT The post office address of the principal office of the Corporation in Maryland is 7190 Oakland Mills Road, Columbia, Maryland 21046, and the name and post office address of the resident agent of the Corporation in Maryland is RICHARD L. SCOTT of 7190 Oakland Mills Road, Columbia, Maryland, County of Howard, 21046. The resident agent is a citizen of Maryland and actually resides therein. ARTICLE IV - STOCK The total number of shares of stock which the Corporation has authority to issue is One Hundred Thousand Shares at a par value of One Dollar ($1.00) each of common voting stock. ARTICLE V - DIRECTORS The number of directors of the Corporation shall be three (3), which number may be increased or decreased pursuant to the by-laws of the Corporation but shall never be less than three. The names of the directors who shall act until the first meeting or until their successors are duly chosen and take office are HARVEY O. PATRICK, RICHARD L. SCOTT and LAWRENCE G. SMITH, JR. The Directors of the Corporation shall be elected annually by the stockholders at the regular annual meeting, and each stockholder shall be entitled to cast as many votes as shall equal the number of his shares of stock; cumulative voting shall be allowed at all meetings of stockholders. Stockholders may vote by proxy. The Board of Directors of the Corporation shall have such powers as are necessary and incidental to carrying out the purposes of the Corporation, except as otherwise limited by the by-laws of the Corporation. ARTICLE VI - OFFICERS The executive officers of the Corporation shall be a president, vice-president, a secretary and a treasurer and any two of these offices may be held by the same person except that the offices of president and vice-president may not be held by the same person. Additional officers may be appointed in the discretion of the Board of Directors. Executive officers shall be elected by the Board of Directors by majority vote at the annual meeting of the stockholders. The Officers of the Corporation shall have only such powers as are granted to them by the by-laws of the Corporation or by the Board of Directors by action taken at any regular or special meeting thereof. -4- ARTICLE VII - BY-LAWS The by-laws of the Corporation shall be made and enacted by the stockholders at their first annual meeting, and no additions or amendments thereto shall thereafter be made except by majority vote of the stockholders at any annual or special meeting. ARTICLE VIII - DURATION The duration of the Corporation shall by perpetual. IN WITNESS WHEREOF, we have hereunto affixed our hands and seals this 4th day of June, 1980. /s/ Evelyn Regal /s/ Harvey O. Patrick - -------------------------------------- --------------------------------- HARVEY O. PATRICK /s/ Evelyn Regal /s/ Richard L. Scott - -------------------------------------- --------------------------------- RICHARD L. SCOTT /s/ Evelyn Regal /s/ Lawrence G. Smith, Jr. - -------------------------------------- --------------------------------- LAWRENCE G. SMITH, JR. STATE OF MARYLAND, COUNTY OF HOWARD, TO WIT: I HEREBY CERTIFY that on this 4th day of JUNE, 1980, before me, the Subscriber, a Notary Public of the State of Maryland, in and for the County aforesaid, personally appeared HARVEY O. PATRICK, RICHARD L. SCOTT and LAWRENCE G. SCOTT, JR. and they actually acknowledged the aforegoing ARTICLES OF INCORPORATION to be their act. AS WITNESS my hand and Notarial Seal. [Seal] /s/ Eric P. Van Swol ------------------------------------ NOTARY PUBLIC my COMMISSION EXPIRES: July 2, 1982 ARTICLES OF INCORPORATION OF PATRICK AIRCRAFT TANK SYSTEMS, INC. approved and received for record by the State Department of Assessments and Taxation of Maryland June 6, 1980 at 9:00 o'clock A.M. as in conformity with law and ordered recorded. Recorded in Liber 2,478, folio 000703, one of the Charter Records of the State Department of Assessments and Taxation of Maryland. ----------------- Bonus tax paid $20.00 Recording fee paid $20.00 Special Fee paid $_______ RECD FEE 4.63 98621 # #56034 C940 R02 T09:36 H01/19/81 To the clerk of the Circuit Court of Howard County IT IS HEREBY CERTIFIED, that the within instrument, together with all indorsments thereon, has been received, approved and recorded by the State Department of Assessments and Taxation of Maryland. AS WITNESS my hand and seal of the said Department at Baltimore. /s/ William J. Simmons ---------------------- [SEAL] A 98621 Mailed to Pats, Inc. 7190 Oakland Mills Rd Columbia, MD 21046 EX-3.14-2 29 EXHIBIT 3.14.2 PATRICK AIRCRAFT TANK SYSTEMS, INC. BY-LAWS ARTICLE I. STOCKHOLDERS SECTION 1.01. ANNUAL MEETINGS. The Corporation shall hold each year, commencing with the year 1980, an annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation, on the second Friday of September in each year if not a legal holiday, and if a legal holiday, then on the first day following which is not a Sunday or a legal holiday. Any business of the Corporation may be transacted at an annual meeting without being specifically required by statute or by the charter to be stated in the notice. Failure to hold an annual meeting at the designated time shall not, however, invalidate the corporation existence or affect otherwise valid corporate acts. SECTION 1.02. SPECIAL MEETINGS. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the President or by a majority of the Board of Directors by vote at a meeting or in writing with or without a meeting. SECTION 1.03. PLACE OF MEETINGS. All meetings of stockholders shall be held at the principal office of the Corporation in Howard County, Maryland, except in cases in which the notice thereof designates some other place; but all such meetings shall be held within the State of Maryland. SECTION 1.04. NOTICE OF MEETINGS. Not less than ten days nor more than ninety days before the date of every stockholders' meetings, the Secretary shall give to each stockholder entitled to vote at such meeting, written or oral notice stating the time and place of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States Mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provision, a waiver of notice in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such persons. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. 2. SECTION 1.05. VOTES REQUIRED. Actions required to be voted on by the stockholders in accordance with the "Corporation and Association" Article of the Maryland Annotated Code, shall be passed by the majority vote of stockholders entitled to vote. SECTION 1.06. LIST OF STOCKHOLDERS. At each meeting of stockholders a full, true and complete list in alphabetical order, or in alphabetical order by classes of stock, or all stockholders entitled to vote at such meeting, certifying the number and class of shares held by each, shall be furnished by the Secretary. SECTION 1.07. VOTING FOR DIRECTORS. Directors shall be elected by the majority vote of all stockholders entitled to vote. Each stockholder will have one and only one vote (cumulative voting is prohibited) for each position on the Board of Directors for which an election is being held. ARTICLE II. BOARD OF DIRECTORS SECTION 2.01. POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except such as are by statute or the charter or by By-Laws conferred upon or reserved to the stockholders. The Board of Directors shall keep full and fair accounts of its transactions. SECTION 2.02. NUMBER OF DIRECTORS. The number of directors of the Corporation shall be FOUR (4). By vote of three which constitute a majority of the entire Board of Directors, the number of directors may be increased or decreased, from time to time, to not exceeding twenty nor less than three directors. SECTION 2.03. ELECTION OF DIRECTORS. Until the first annual meeting of stockholders or until successors are duly elected and qualify, the Board shall consist of the persons named as such in the Charter. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors to hold office until the next succeeding annual meeting or until their successors are elected and qualify. At any meeting of stockholders, duly called, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. SECTION 2.04. VACANCIES. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, even if such remaining members do not constitute a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualifies. 3. SECTION 2.05. REGULAR MEETINGS. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose or organization and the transaction of other business at such time as may be designed by the stockholders at such meeting. The first meeting shall be held at the place designated by the Board of Directors for such first regular meeting or at the office of the Corporation in Howard County, Maryland. No notice of such first meeting shall be necessary if held as hereinabove provided. Other regular meetings of the Board of Directors of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the President or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. Such special meetings shall be held at such place or places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.07. NOTICE OF MEETINGS. Except as provided in Section 2.05, notice of the place, day and hour of every regular and special meeting shall be given to each Director two days (or more) before the meeting, by delivering the same to him personally, or by sending the same to him by telegraph, or by leaving the same at his residence or usual place of business, or, in the alternative, by mailing such notice three days (or more) before the meeting, postage prepaid, and addressed to him at his last known post office address, according to the records of the Corporation. Unless required by these By-Laws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need by given to any Director who attends, or to any Director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need by given of any such adjourned meeting other than by announcement. SECTION 2.08. QUORUM. At all meetings of the Board of Directors the presence of a two-thirds' majority of the entire Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which it is by stature, by the Charter or by the By-Laws otherwise provided, the vote of a simple majority of such quorum at a duly constituted meeting shall be sufficient to elect and pass any measure. In the absence of a quorum, the Directors present by majority vote and without notice other than by announcement may adjourn the meeting from time to time until a quorum shall attend. SECTION 2.09. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. 4. ARTICLE III. OFFICERS SECTION 3.01. EXECUTIVE OFFICERS. The Board of Directors shall choose a President from among the Directors, and a Secretary and a Treasurer who need not be directors. The Board of Directors may choose one or more Vice Presidents. Any two or more of the above-mentioned offices, except those of President and a Vice President, may be held by the same person; but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument be required by statute, by the Charter, by the By-Laws or by resolution of the Board of Directors to be executed, acknowledged or verified by any two or more officers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor shall have been duly chosen and qualified, or until he shall have resigned or shall have been removed. Any vacancy in any of the above offices may be filled for the unexpired portion of the term of the Board of Directors at any regular or special meeting. SECTION 3.02. PRESIDENT. The President shall preside at all meetings of the stockholders and of the Board of Directors at which he shall be present; he shall have general charge and supervision of the business of the Corporation; he may sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and, in general, he shall perform all duties incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors. SECTION 3.03. VICE PRESIDENTS. The Vice President or Vice Presidents, at the request of the President or in his absence or during his inability to act, shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there be more than one Vice President, the President may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions; otherwise any of the Vice Presidents may perform any of such duties or exercise any of such functions. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned to him or them by the Board of Directors or the President. SECTION 3.04. SECRETARY. The Secretary shall keep the minutes of the meetings of stockholders, of the Board of Directors, and of any committees, in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of the By-Laws or as required by law; he shall be custodian of the records of the Corporation; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors or the President. 5. SECTION 3.05. TREASURER. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; he shall render to the President and to the Board of Directors whenever requested, an account of the financial condition of the Corporation, and, in general, he shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as may be assigned to him by the Board of Directors or the President. SECTION 3.06. SUBORDINATE OFFICERS. The Board of Directors may from time to time appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period and perform such duties as the Board of Directors or the President may prescribe. The Board of Directors, may from time to time authorize any committee or officer to appoint and remove subordinate officers and prescribe the duties thereof. SECTION 3.07. COMPENSATION. The Board of Directors shall have power to fix the compensation of all officers of the Corporation. SECTION 3.08. REMOVAL. Any officer or agent of the Corporation may be removed by the Board of Directors whenever, in its judgment, the best interest of the Corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. ARTICLE IV. STOCK SECTION 4.01. CERTIFICATES. Each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and kind of shares of stock owned by him in the Corporation. Such certificates shall be signed by the President or a Vice President and countersigned by the Secretary or Treasurer. Stock certificates shall be in such form, not inconsistent with law or with the Charter, as shall be approved by the Board of Directors. In case any officer of the Corporation who has signed any certificate ceases to be an officer of the Corporation, whether because of death, resignation or otherwise, before such certificate is issued,the certificate may nevertheless be issued and delivered by the Corporation as if the officer had not ceased to be such officer as of the date of its issue. SECTION 4.02. TRANSFERS. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue and transfer of certificates of stock. SECTION 4.03. STOCK LEDGERS. Original or duplicate stock ledgers containing the names and addresses of the stockholders of the Corporation and the number of shares of each class held by them respectively, shall be kept at an office of the Corporation. 6. SECTION 4.04. RECORD DATES. The Board of Directors is hereby empowered to fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. SECTION 4.05. NEW CERTIFICATES. In case of any certificate of stock is lost, stolen, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof upon such terms and conditions as it may deem advisable; or the Board of Directors may delegate such power to any officer or officers of the Corporation; but the Board of Directors or such officer or officers, in their discretion, may refuse to issue such new certificate save upon the order of some court having jurisdiction in these premises. ARTICLE V. FINANCE SECTION 5.01. CHECKS, DRAFTS, ETC. Checks, drafts and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in the amount of Fifty Thousand Dollars ($50,000) or less, shall, unless otherwise provided by resolution of the Board of Directors, be signed by either the President, Vice President-Finance, or the Treasurer. Checks, drafts and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in an amount in excess of Fifty Thousand Dollars ($50,000), shall, unless otherwise provided by resolution of the Board of Directors, be signed by both the President, Vice President-Finance, or the Treasurer jointly. SECTION 5.02. ANNUAL REPORTS. There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of the Board of Directors and filed within twenty days thereafter at the principal office of the Corporation in this State. ARTICLE VI. SUNDRY PROVISIONS SECTION 6.01. AMENDMENTS. Any and all provisions of the By-Laws may be altered or repealed and new By-Laws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose. In addition, the Board of Directors shall have the power, at any regular or special meeting thereof, to make and adopt new by-laws or to amend, alter or repeal any by-law of the Corporation. AMENDMENT TO BY-LAWS OF PATRICK AIRCRAFT TANK SYSTEMS, INC. The undersigned, being the sole shareholder of PATRICK AIRCRAFT TANK SYSTEMS, INC., a Maryland corporation, hereby amends the By-Laws of the Corporation as follows: a. by deleting from Article III Section 3.01. EXECUTIVE OFFICERS the words "from among the Directors;" from the second line thereof. b. by adding the following sentence between the first and second sentence thereof: The Board of Directors may also elect a chief executive officer and a chief financial officer, each to perform such duties as may be ascribed to the office by the Board of Directors. In all other respects the By-Laws shall remain unchanged. This Amendment has been adopted by the sole shareholder in lieu of a special meeting called for that purpose pursuant to Section 2-408(c) of the Corporations and Associations Article of the MARYLAND ANNOTATED CODE (1993 Repl. Vol., as amended). WITNESS: PATS, Inc., a Maryland corporation Sole Shareholder /s/ Steve Tepper By: /s/ John R. Hinson - -------------------- ----------------------- (SEAL) Steve Tepper John R. Hinson Chief Financial Officer EX-3.15-1 30 EXHIBIT 3.15.1 ARTICLES OF INCORPORATION OF PATS AIRCRAFT AND ENGINEERING CORPORATION approved and received for record by the State Department of Assessments and Taxation of Maryland February 23, 1977 at 8:30 o'clock A.M. as in conformity with law and ordered recorded. A 58872 -------------- Recorded in Liber 2370, folio 174, one of the Charter Records of the State Department of Assessments and Taxation of Maryland. -------------- Bonus tax paid $150.00 Recording fee paid $15.00 -------------- To the clerk of the Circuit Court of Howard County IT IS HEREBY CERTIFIED, that the within instrument, together with all indorsements thereon, has been received, approved and recorded by the State Department of Assessments and Taxation of Maryland. AS WITNESS my hand and seal of the said Department at Baltimore. -------------------------------------- [SEAL] ARTICLES OF INCORPORATION OF PATS AIRCRAFT AND ENGINEERING CORPORATION WE, the undersigned HARVEY C. PATRICK, whose post office address is 5229 Windmill Lane, Columbia, Maryland 21044, RICHARD L. SCOTT, whose post office address is 103 Talloway Court, Sykesville, Maryland 21784 and EDWARD G. TINDELL, whose post office address is 566 Shipley Road, Linthicum, Maryland 21090, each being at least twenty-one years of age, do hereby associate ourselves as incorporators with the intention of forming a corporation under and by virtue of the general laws of the State of Maryland. ARTICLE I - NAME The name of the Corporation, hereinafter called the Corporation, is: PATS AIRCRAFT AND ENGINEERING CORPORATION. ARTICLE II - PURPOSES The general nature of its business, and the purposes for which the Corporation is formed, are as follows: FIRST: The specific business in which the corporation is primarily to engage is the manufacture, purchasing, sale and service of aircraft parts and equipment. SECOND: To engage in the manufacture, purchase and sale of aircraft parts and equipment, and as such to service, manufacture, hold, purchase or otherwise acquire, buy and sell both retail and wholesale, produce, secure, receive, procure, make or otherwise dispose of, and generally deal in aircraft equipment and supplies of all types and to conduct such business either for its own account or as agent, factor, broker, middleman, commission man or representative of others. THIRD: To apply for, obtain purchase, or otherwise acquire any patents, copyrights, licenses, trademarks, tradenames, rights, processes, formulae and the like which might be used for any of the purposes of the Corporation; and to use, exercise, develop, grant licenses in respect of, sell and otherwise turn to account the same. FOURTH: To purchase, lease or otherwise acquire, all or any part of the property, rights, businesses, contracts, goodwill, franchise and assets of every kind of any corporation, co-partnership or individual (including the estate of a decedent), carrying on or having carried on in whole or in part any of the aforesaid business or any other business that the Corporation may be authorized to carry on, and to undertake, guarantee, assume and pay the indebtedness and liabilities thereof, and to pay for any such property, rights, business, contracts, goodwill, franchises or assets by the issue, in accordance with the laws of Maryland of stock, bonds or other securities of the Corporation or otherwise. FIFTH: To acquire by purchase, or lease, or otherwise, lands and interests in lands and to own, hold, improve, develop, and manage any real estate so acquired and to erect or cause to be erected on any lands owned, held or occupied by the Corporation buildings or other structures with their appurtenances and to rebuild, enlarge, alter or improve any buildings or other structures now or hereafter erected on any lands so owned, held or occupied and to mortgage, sell, lease or otherwise dispose of any lands or interests in lands and in buildings or other structures and any stores, shops, suites, rooms or parts of any buildings or other structures at any time owned or held by the Corporation. SIXTH: To manage, sell, assign, transfer, lease, mortgage, pledge or otherwise dispose of or turn to account or deal with all or any part of the property of the Corporation, and from time to time to vary any investment or employment of capital of the Corporation. SEVENTH: To carry on and transact for itself or for account of others the business of general merchants, general agents, manufacturers, buyers and sellers of or dealers in natural products, raw materials, manufactured products, marketable goods, wares and merchandise of every description. EIGHTH: To purchase or otherwise acquire, hold and reissue shares of its capital stock of any class; and to purchase, hold, sell, assign, transfer, exchange, lease, mortgage, pledge or otherwise dispose of any shares of stock or of voting trust certificates for any shares of stock of or any bonds or other securities or evidences of indebtedness issued or created by any other corporation or association organized under the laws of the State of Maryland or of any other state, territory, district, colony or dependency of the United States of America or of any foreign country and while the owner or holder of any such shares of stock, voting trust certificates, bonds or other obligations to possess and exercise in respect thereof any and all rights, powers and privileges of ownership including the right to vote on any shares of stock so held or owned and upon a distribution of the assets or a division of the profits of this Corporation, to distribute any such shares of stock, voting trust certificates, bonds or other obligations or the proceeds thereof among the stockholders of this Corporation. NINTH: To carry out all or any part of the aforesaid purposes and to conduct its business in all or any of its branches in any or all states, territories, districts, colonies and dependencies of the United States of America and in foreign countries and to maintain offices and agencies in any or all states, territories, districts, colonies and dependencies of the United States of America and in foreign countries. The aforegoing enumeration of the purposes, objects and business of the Corporation is made in furtherance and no in limitation of the powers conferred upon the Corporation by law and is not intended by the mention of any particular purpose, object or business in any manner to limit or restrict the generality of any other purpose, object or business mentioned or to limit or restrict any of the powers of the Corporation. The Corporation is formed upon the articles, conditions and provisions herein expressed and subject in all particulars to the limitations relative to corporations which are contained in the general laws of this State. ARTICLE III - ADDRESS AND RESIDENT AGENT The post office address of the principal office of the Corporation in Maryland is 7190 Oakland Hills Road, Columbia, Maryland 21046, and the name and post office address of the resident agent of the Corporation in Maryland is RICHARD L. SCOTT of 103 Talloway Court, Sykesville, Maryland, County of Carroll, 21784. The resident agent is a citizen of Maryland and actually resides therein. ARTICLE IV - STOCK The total number of shares of stock which the Corporation has authority to issue is Five Hundred Thousand Shares at a par value of One Dollar ($1.00) each of common voting stock, and Two Hundred Fifty Thousand Shares of One Dollar ($1.00) par value Class A preferred non voting stock, non cumulative. ARTICLE V - DIRECTORS The number of directors of the Corporation shall be three (3), which number may be increased or decreased pursuant to the by-laws of the Corporation but shall never be less than three. The names of the directors who shall act until the first meeting or until their successors are duly chosen and take office are HARVEY O. PATRICK, RICHARD D. SCOTT and EDWARD C. TINDELL. The Directors of the Corporation shall be elected annually by the stockholders at the regular annual meeting, and each stockholder will be entitled to cast as many votes as shall equal the number of his shares of stock; cumulative voting shall be allowed at all meetings of stockholders. Stockholders may vote by proxy. The Board of Directors of the Corporation shall have such powers as are necessary and incidental to carrying out the purposes of the Corporation, except as otherwise limited by the by-laws of the Corporation. ARTICLE VI - OFFICERS The executive officers of the Corporation shall be a president, a vice-president, a secretary and a treasurer and any two of three offices may be held by the same person except that the offices of president and vice-president may not be held by the same person. Additional officers may be appointed in the discretion of the Board of Directors. Executive officers shall be elected by the Board of Directors by majority vote at the annual meeting of the stockholders. The Officers of the Corporation shall have only such powers as are granted to them by the by-laws of the Corporation or by the Board of Directors by action taken at any regular or special meeting thereof. ARTICLE VII - BY-LAWS The by-laws of the Corporation shall be made and enacted by the stockholders at their first annual meeting, and no additions or amendments thereto shall thereafter be made except by majority vote of the stockholders at any annual or special meeting. -4- ARTICLE VIII - DURATION The duration of the Corporation shall be perpetual. IN WITNESS WHEREOF, we have hereunto affixed our hands and seals this 16th day of February, 1997. WITNESS: /s/ Richard L. Scott /s/ Harvey O. Patrick (SEAL) - ---------------------------- ---------------------------- HARVEY O. PATRICK /s/ Roy P. Abernathy /s/ Richard L. Scott (SEAL) - ---------------------------- ---------------------------- RICHARD L. SCOTT /s/ Richard L. Scott /s/ Edward C. Tindell (SEAL) - ---------------------------- ---------------------------- EDWARD C. TINDELL STATE OF MARYLAND, COUNTY OF HOWARD, TO WIT. I HEREBY CERTIFY that on this 16th day of February, 1997, before me, the Subscriber, a Notary Public of the State of Maryland, in and for the County aforesaid, personally appeared HARVEY O. PATRICK, RICHARD L. SCOTT and EDWARD G. TINDELL and they actually acknowledged the aforegoing ARTICLES OF INCORPORATION to be their act. AS WITNESS my hand and Notarial Seal. /s/ Edna L. Fulton ---------------------------- NOTARY PUBLIC MY COMMISSION EXPIRES: July 1, 1978 EX-3.15-2 31 EXHIBIT 3.15.2 PATS AIRCRAFT AND ENGINEERING CORPORATION BY-LAWS ARTICLE I. STOCKHOLDERS SECTION 1.01. ANNUAL MEETINGS. The Corporation shall hold each year, commencing with the year 1978, an annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation, on the second Friday of September in each year if not a legal holiday, and if a legal holiday, then on the first day following which is not a Sunday or a legal holiday. Any business of the Corporation may be transacted at an annual meeting without being specially designated in the notice, except such business as is specifically required by statute or by the charter to be stated in the notice. Failure to hold an annual meeting at the designated time shall not, however, invalidate the corporation existence or affect otherwise valid corporate acts. SECTION 1.02. SPECIAL MEETINGS. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the President or by a majority of the Board of Directors by vote at a meeting or in writing with or without a meeting. SECTION 1.03. PLACE OF MEETINGS. All meetings of stockholders shall be held at the principal office of the Corporation in Howard County, Maryland, except in cases in which the notice thereof designates some other place; but all such meetings shall be held within the State of Maryland. SECTION 1.04. NOTICE OF MEETINGS. Not less than ten days nor more than ninety days before the date of every stockholders' meeting, written or oral notice stating the time and place of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States Mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provision, a waiver of notice in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such persons. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. 2. SECTION 1.05. VOTES REQUIRED. Actions required to be voted on by the stockholders in accordance with the "Corporation and Association" Article of the Maryland Annotated Code, shall be passed by the majority vote of stockholders entitled to vote. SECTION 1.06. LIST OF STOCKHOLDERS. At each meeting of stockholders a full, true and complete list in alphabetical order, or in alphabetical order by classes of stock, or all stockholders entitled to vote at such meeting, certifying the number and class of shares held by each, shall be furnished by the Secretary. SECTION 1.07. VOTING FOR DIRECTORS. Directors shall be elected by the majority vote of all stockholders entitled to vote. Each stockholder will have one and only one vote (cumulative voting is prohibited) for each position on the Board of Directors for which an election is being held. ARTICLE II. BOARD OF DIRECTORS SECTION 2.01. POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except such as are by statute or the charter or by By-Laws conferred upon or reserved to the stockholders. The Board of Directors shall keep full and fair accounts of its transactions. SECTION 2.02. NUMBER OF DIRECTORS. The number of directors of the Corporation shall be FOUR (4). By vote of a three (3) majority of the entire Board of Directors, the number of directors may be increased or decreased, from time to time, to not exceeding twenty nor less than three directors. SECTION 2.03. ELECTION OF DIRECTORS. Until the first annual meeting of stockholders or until successors are duly elected and qualify, the Board shall consist of the persons named as such in the Charter. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors to hold office until the next succeeding annual meeting or until their successors are elected and qualify. At any meeting of stockholders, duly called, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. SECTION 2.04. VACANCIES. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, even if such remaining members do not constitute a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by 3. action of a majority of the entire Board of Directors. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualifies. SECTION 2.05. REGULAR MEETINGS. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose or organization and the transaction of other business at such time as may be designated by the stockholders at such meeting. The first meeting shall be held at the place designated by the Board of Directors for such first regular meeting or at the office of the Corporation in Howard County, Maryland. No notice of such first meeting shall be necessary if held as hereinabove provided. Other regular meetings of the Board of Directors shall be held on such dates and at such places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the President or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. Such special meetings shall be held at such place or places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.07. NOTICE OF MEETINGS. Except as provided in Section 2.05, notice of the place, day and hour of every regular and special meeting shall be given to each Director two days (or more) before the meeting, by delivering the same to him personally, or by sending the same to him by telegraph, or by leaving the same at his residence or usual place of business, or, in the alternative, by mailing such notice three days (or more) before the meeting, postage prepaid, and addressed to him at his last known post office address, according to the records of the Corporation. Unless required by these By-Laws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted thereat. No notice of any meeting of the Board of Directors need be given to any Director who attends, or to any Director who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 2.08. QUORUM. At all meetings of the Board of Directors the presence of a two-thirds' majority of the entire Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which it is by statute, by the Charter or by the By-Laws otherwise provided, the vote of a simple majority of such quorum at a duly constituted meeting shall be sufficient to elect and pass any measure. In the absence of a quorum, the Directors present by majority vote and without notice other than by announcement may adjourn the meeting from time to time until a quorum shall attend. 4. SECTION 2.09. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board of or such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. ARTICLE III. OFFICERS SECTION 3.01. EXECUTIVE OFFICERS. The Board of Directors shall choose a President from among the Directors, and a Secretary and a Treasurer who need not be directors. The Board of Directors may choose one or more Vice Presidents. Any two or more of the above-mentioned offices, except those of President and a Vice President, may be held by the same person; but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument be required by statute, by the Charter, by the By-Laws or by resolution of the Board of Directors to be executed, acknowledged or verified by any two or more officers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor shall have been duly chosen and qualified, or until he shall have resigned or shall have been removed. Any vacancy in any of the above offices may be filled for the unexpired portion of the term of the Board of Directors at any regular or special meeting. SECTION 3.02. PRESIDENT. The President shall preside at all meetings of the stockholders and of the Board of Directors at which he shall be present; he shall have general charge and supervision of the business of the Corporation; he may sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and, in general, he shall perform all duties incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors. SECTION 3.03. VICE PRESIDENTS. The Vice President or Vice Presidents, at the request of the President or in his absence or during his inability to act, shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there by more than one Vice President, the President may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions; otherwise any of the Vice Presidents may perform any of such duties or exercise any of such functions. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned to him or them by the Board of Directors or the President. 5. SECTION 3.04. SECRETARY. The Secretary shall keep the minutes of the meetings of stockholders, of the Board of Directors, and of any committees, in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of the By-Laws or as required by law; he shall be custodian of the records of the Corporation; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors or the President. SECTION 3.05. TREASURER. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all moneys or other valuable effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors; he shall render to the President and to the Board of Directors whenever requested, an account of the financial condition of the Corporation, and, in general, he shall perform all the duties incident to the office of a treasurer of a corporation, and such other duties as may be assigned to him by the Board of Directors or the President. SECTION 3.06. SUBORDINATE OFFICERS. The Board of Directors may from time to time appoint such subordinate officers as it may deem desirable. Each such officer shall hold office for such period and perform such duties as the Board of Directors or the President may prescribe. The Board of Directors, may from time to time authorize any committee or officer to appoint and remove subordinate officers and prescribe the duties thereof. SECTION 3.07. COMPENSATION. The Board of Directors shall have power to fix the compensation of all officers of the Corporation. SECTION 3.08. REMOVAL. Any officer or agent of the Corporation may be removed by the Board of Directors whenever, in its judgment, the best interest of the Corporation will be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. ARTICLE IV. STOCK SECTION 4.01. CERTIFICATES. Each stockholder shall be entitled to a certificate or certificates which shall represent and certify the number and kind of shares of stock owned by him in the Corporation. Such countersigned by the Secretary or the Treasurer. Stock certificates shall be signed by the President or a Vice President and countersigned by the Secretary or the Treasurer. Stock certificates shall be in such form, not inconsistent with law or with the Charter, as shall be approved by the Board of Directors. In case any officer of the Corporation who has signed any certificate ceases to be an officer of the Corporation, whether because of death, resignation or otherwise, before such certificate is issued, the certificate may nevertheless be issued and delivered by the Corporation as if the officer had not ceased to be such officer as of the date of its issue. 6. SECTION 4.02. TRANSFERS. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue and transfer of certificates of stock. SECTION 4.03. STOCK LEDGERS. Original or duplicate stock ledgers containing the names and addresses of the stockholders of the Corporation and the number of shares of each class held by them respectively, shall be kept at an office of the Corporation. SECTION 4.04. RECORD DATES. The Board of Directors is hereby empowered to fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. SECTION 4.05. NEW CERTIFICATES. In case any certificate of stock is lost, stolen, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof upon such terms and conditions as it may deem advisable; or the Board of Directors may delegate such power to any officer or officers of the Corporation; but the Board of Directors or such officer or officers, in their discretion, may refuse to issue such new certificate save upon the order of some court having jurisdiction in the premises. ARTICLE V. FINANCE SECTION 5.01. CHECKS, DRAFTS, ETC. Checks, drafts, and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in the amount of Fifty Thousand Dollars ($50,000) or less, shall, unless otherwise provided by resolution of the Board of Directors, be signed by either the President, Vice President-Finance, or the Treasurer. Checks, drafts, and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in an amount in excess of Fifty Thousand Dollars ($50,000), shall, unless otherwise provided by resolution of the Board of Directors, be signed by both the President, Vice President, of the Treasurer jointly. SECTION 5.02. ANNUAL REPORTS. There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of the Board of Directors and filed within twenty days thereafter at the principal office of the Corporation in this State. ARTICLE VI. SUNDRY PROVISIONS SECTION 6.01. AMENDMENTS. Any and all provisions of these 7. By-Laws may be altered or repealed and new By-Laws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose. In addition, the Board of Directors shall have the power, at any regular or special meeting thereof, to make and adopt new by-laws or to amend, alter or repeal any by-law of the Corporation. AMENDMENT TO BY-LAWS OF PATS AIRCRAFT AND ENGINEERING CORPORATION The undersigned, being the sole shareholder of PATS AIRCRAFT AND ENGINEERING CORPORATION, a Maryland corporation, hereby amends the By-Laws of the Corporation as follows: a. by deleting from Article III Section 3.01. EXECUTIVE OFFICERS the words "from among the Directors;" from the second line thereof. b. by adding the following sentence between the first and second sentence thereof: The Board of Directors may also elect a chief executive officer and a chief financial officer, each to perform such duties as may be ascribed to the office by the Board of Directors. In all other respects the By-Laws shall remain unchanged. This Amendment has been adopted by the sole shareholder in lieu of a special meeting called for that purpose pursuant to Section 2-408(c) of the Corporations and Associations Article of the MARYLAND ANNOTATED CODE (1993 Repl. Vol., as amended). WITNESS: PATS, Inc., a Maryland corporation Sole Shareholder /s/ Steve Tepper By: /s/ John R. Hinson - -------------------- ----------------------- (SEAL) Steve Tepper John R. Hinson Chief Financial Officer EX-3.16-1 32 EXHIBIT 3.16.1 ARTICLES OF INCORPORATION OF PATS Support Inc. FIRST: I, L. Roland Sturm, whose post office address is Reese and Carney, LLP, 10715 Charter Drive, Columbia, Maryland 21044, being at least eighteen (18) years of age, hereby form a corporation under and by virtue of the General Laws of the State of Maryland. SECOND: The name of the corporation (which is hereafter referred to as the "Corporation") is: PATS Support, Inc. THIRD: The purposes for which the Corporation is formed are: (1) To engage in the assembling, manufacturing, purchasing, sales, design, and service of aircraft components such as auxiliary power units, auxiliary fuel tanks, cooling systems, and other aircraft components. (2) To engage in and carry on any other business which may conveniently be conducted in conjunction with any of the business of the Corporation. (3) To acquire all or any part of the good will, rights, property and business of any person, firm, association or corporation heretofore or hereafter engaged in any business similar to any business which the corporation has the power to conduct, and to hold, utilize, and enjoy in any manner, dispose of the whole or any part of the rights, property and business so acquired, and to assume in connection therewith any liabilities of any such person, firm, association, or corporation. (4) To apply for, obtain, purchase or otherwise acquire, any patents, copyrights, licenses, trademarks, trade names, rights, processes, formulas, and the like, which may become capable of being used for any of the purposes of the Corporation; and to use, exercise, develop, grant licenses in respect of, sell and otherwise turn to account, the same. (5) To acquire by purchase, subscription, or in any other manner, take, receive, hold, use, employ, sell, assign, transfer, exchange, pledge, mortgage, lease, dispose of any otherwise deal in and with, any shares of stock, shares, bonds, debentures, notes, mortgages and other obligations, and any certificates, receipts, warrants or other instruments evidencing rights or options to receive, purchase or subscribe for the name or representing any other rights or interests therein or in any property or assets, issued or created by any persons, firms, associations, corporations, syndicates, or by any governments or subdivisions thereof; and to possess and exercise in respect thereof any and all the rights, powers and privileges of individual holders. (6) To aid in any manner any person, firm, association, corporation or syndicate, of which any shares, bonds, debentures, notes, mortgages, or other obligations, or any certificates, receipts, warrants, or other instruments evidencing right or options to receive, purchase or subscribe for the same, or representing any other rights or interests therein, are held by or for this Corporation, or in the welfare of which this Corporation shall have any interest, and to do any acts or things designed to protect, preserve, improve, enhance the value of any such property or interest, or any other property of this Corporation. - 2 - (7) To guarantee the payment of dividends upon any shares of stock or shares in, or the performance of any contract by, any other corporation or association in which this Corporation has an interest, and to endorse or otherwise guarantee the payment of the principal and interest, or either, of any bonds, debentures, notes or other evidences of indebtedness created or issued by any such other corporation or association. (8) To carry out all or any part of the foregoing objects as principal, factor, agent, contractor, or otherwise, either alone or through or in conjunction with any person, firm, association or corporation, and, in carrying on its business and for the purpose of attaining or furthering any of its objects and purposes, to make and perform any contracts and to do any acts or things and to exercise any powers suitable, convenient or proper for the accomplishment of any of the objects and purposes herein enumerated or incidental to the powers herein specified, or which at any time may appear conducive to or expedient for the accomplishment of any of such objects and purposes. (9) To carry out all or any part of the aforesaid objects and purposes, and to conduct its business in all or any of its branches, in any or all states, territories, districts and possessions of the United States of America and in foreign countries; and to maintain offices and agencies in any or all states, territories, districts, and possessions of the United States of America and foreign countries. (10) The foregoing objects and purposes shall, except when otherwise expressed, be in no way limited or restricted by reference to or inference from the terms of any other clause of this or any other article of these Articles of Incorporation or of any amendment thereto, and shall each be regarded as independent, and construed as powers as well as objects and purposes. -3- (11) The Corporation shall be authorized to exercise and enjoy all the powers, rights, and privileges granted to, or conferred upon, corporations of a similar character by the General Laws of the State of Maryland now or hereafter in force, and the enumeration of the foregoing powers shall not be deemed to exclude any powers, rights or privileges so granted or conferred. FOURTH: The post office address of the principal office of the Corporation in this State is 10715 Charter Drive, Columbia, Maryland 21044. The name and post office address of the Resident Agent of the Corporation in this State is L. Roland Sturm, 10715 Charter Drive, Columbia, Maryland 21044. Said Resident Agent is an individual actually residing in this State. FIFTH: The total number of shares of capital stock which the Corporation has authority to issue is five thousand (5,000) shares of Common Stock without par value. SIXTH: The number of directors of the Corporation shall be three (3), which number may be increased pursuant to the By-Laws of the Corporation, but, shall never be less than three (3), unless there are less than three (3) stockholders, in which event the number of directors shall be equal to the number of stockholders. The names of the Directors who shall act until the first annual meeting or until their successors are duly chosen and qualified are: Harvey O. Patrick Larry Ohler Glenn Frost -4- SEVENTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the directors and stockholders: (1) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time-to-time of shares of its stock of any class or classes, whether now or hereafter authorized or securities convertible into shares of its stock of any class or classes, whether now or hereafter authorized. (2) The Board of Directors of the Corporation may classify or reclassify any unissued shares by fixing or altering in any one or more respects, from time-to-time before issuance of such shares, the preferences, rights, voting powers, restrictions and qualifications of, the dividends on, the times and prices of redemption of, and the conversion rights of, such shares. The enumeration and definition of a particular power of the Board of Directors included in the foregoing shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other article of the Charter of the Corporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit any powers conferred upon the Board of Directors under the General Laws of the State of Maryland now or hereinafter in force. EIGHTH: Except as may otherwise be provided by the Board of Directors of the Corporation, no holder of any shares of stock of the Corporation shall have any preemptive right to purchase, subscribe for, or otherwise acquire any shares of stock of the -5- Corporation of any class now or hereafter authorized, or any securities exchangeable for or convertible into such shares, or any warrants or other instruments evidencing rights or options to subscribe for, purchase or otherwise acquire such shares. NINTH: The duration of the corporation shall be perpetual. TENTH: (1) As used in this Article TENTH, any word or words that are defined in Section 2-418 of the Corporations and Associations Article of the ANNOTATED CODE OF MARYLAND (the "Indemnification Section"), as amended from time-to-time, shall have the same meaning as provided in the Indemnification Section. (2) The Corporation shall indemnify a present or former director or officer of the Corporation in connection with a proceeding to the fullest extent permitted by and in accordance with the Indemnification Section. (3) With respect to any corporate representative other than a present or former director or officer, the Corporation may indemnify such corporate representative in connection with a proceeding to the fullest extent permitted by and in accordance with the Indemnification Section; provided however, that the extent a corporate representative other than a present or former director or officer successfully defends on the merits or otherwise any proceeding referred to in subsections (b) or (c) of the Indemnification Section or any claim, issue or matter raised in such proceeding, the Corporation shall not indemnify such corporate representative other than a present or former director of officer under the Indemnification Section unless and until it shall have been determined and authorized in the specific case by (i) an affirmative vote, at a duly constituted meeting of a -6- majority of the Board of Directors who were not parties to the proceeding; or (ii) an affirmative vote, at a duly constituted meeting of a majority of all the votes cast by stockholders entitled to vote who were not parties to the proceeding, that indemnification of such corporate representative other than a present or former director or officer is proper in the circumstances. IN WITNESS WHEREOF, I have signed these Articles of Incorporation and acknowledge same to be my act this 26th day of November, 1996. WITNESS /s/ Billie Van Wagener /s/ L. Roland Sturm - ------------------------------------ ---------------------------------- Please return to: L. Roland Sturm, Esquire Reese and Carney, LLP 10715 Charter Drive - Suite 200 Columbia MD 21044 (410) 740-4600 -7- EX-3.16-2 33 EXHIBIT 3.16.2 PATS Support, Inc. BY-LAWS ARTICLE I. STOCKHOLDERS SECTION 1.01. ANNUAL MEETINGS. The Corporation shall hold each year, commencing with the year 1978, an annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation, on the second Friday of September in each year if not a legal holiday, and if a legal holiday, then on the first day following which is not a Sunday or a legal holiday. Any business of the Corporation may be transacted at an annual meeting without being specially designated in the notice, except such business as is specifically required by statute or by the charter to be stated in the notice. Failure to hold an annual meeting at the designated time shall not, however, invalidate the corporation existence or affect otherwise valid corporate acts. SECTION 1.02. SPECIAL MEETINGS. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the President or by a majority of the Board of Directors by vote at a meeting or in writing with or without a meeting. SECTION 1.03. PLACE OF MEETINGS. All meetings of stockholders shall be held at the principal office of the Corporation in Howard County, Maryland, except in cases in which the notice thereof designates some other place; but all such meetings shall be held within the State of Maryland. SECTION 1.04. NOTICE OF MEETINGS. Not less than ten days nor more than ninety days before the date of every stockholders' meeting, the Secretary shall give to each stockholder entitled to vote at such meeting, written or oral notice stating the time and place of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, either by mail or by presenting it to him personally or by leaving it at his residence or usual place of business. If mailed, such notice shall be deemed to be given when deposited in the United States. Mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing provision, a waiver of notice in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting in person or by proxy, shall be deemed equivalent to the giving of such notice to such persons. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 1.05. VOTES REQUIRED. Actions required to be voted on by the stockholders in accordance with the "Corporation and Association" Article of the Maryland Annotated Code, shall be passed by the majority vote of stockholders entitled to vote. SECTION 1.06. LIST OF STOCKHOLDERS. At each meeting of stockholders a full, true and complete list in alphabetical order, or in alphabetical order by classes of stock, or all stockholders entitled to vote at such meeting, certifying the number and class of shares held by each, shall be furnished by the Secretary. SECTION 1.07. VOTING FOR DIRECTORS. Directors shall be elected by the majority vote of all stockholders entitled to vote. Each stockholder will have one and only one vote (cumulative voting is prohibited) for each position on the Board of Directors for which an election is being held. ARTICLE II. BOARD OF DIRECTORS SECTION 1.02. POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may exercise all the powers of the Corporation, except such as are by statute or the charter or by By-Laws conferred upon or reserved to the stockholders. The Board of Directors shall keep full and fair accounts of its transactions. SECTION 2.02. NUMBER OF DIRECTORS. The number of directors of the Corporation shall be FOUR (4). By vote of three which constitute a majority of the entire Board of Directors, the number of directors may be increased or decreased, from time to time, to not exceeding twenty nor less than three directors. SECTION 2.03. ELECTION OF DIRECTORS. Until the first annual meeting of stockholders or until successors are duly elected and qualify, the Board shall consist of the persons named as such in the Charter. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors to hold office until the next succeeding annual meeting or until their successors are elected and qualify. At any meeting of stockholders, duly called, the stockholders may, by the affirmative vote of the holders of a majority of the votes entitled to be cast thereon, remove any director or directors from office and may elect a successor or successors to fill any resulting vacancies for the unexpired terms of removed directors. SECTION 2.04. VACANCIES. Any vacancy occurring in the Board of Directors for any cause other than by reason of an increase in the number of directors may be filled by a majority of the remaining members of the Board of Directors, even if such remaining members do not constitute a quorum. Any vacancy occurring by reason of an increase in the number of directors may be filled by action of a majority of the entire Board of Directors. A director elected by the Board of Directors to fill a vacancy shall be elected to hold office until the next annual meeting of stockholders or until his successor is elected and qualifies. SECTION 2.05. REGULAR MEETINGS. After each meeting of stockholders at which a Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose or organization and the transaction of other business at such time as may be designed by the stockholders at such meeting. The first meeting shall be held at the place designated by the Board of Directors for such first regular meeting or at the office of the Corporation in Howard County, Maryland. No notice of such first meeting shall be necessary if held as hereinabove provided. Other regular meetings of the Board of Directors shall be held on such dates and at such places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called at any time by the President or by a majority of the Board of Directors by vote at a meeting, or in writing with or without a meeting. Such special meetings shall be held at such place or places within or without the State of Maryland as may be designated from time to time by the Board of Directors. SECTION 2.07. NOTICE OF MEETINGS. Except as provided in Section 2.05, notice of the place, day and hour of every regular and special meeting shall be given to each director two days (or more) before the meeting, by delivering the same to him personally, or by sending the same to him by telegraph, or by leaving the same at this residence or usual place of business, or, in the alternative, by mailing such notice three days (or more) before the meeting, postage prepaid, and addressed to him at his last known post office address, according to the records of the Corporation. Unless required by these By-Laws or by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted thereat. No notice of any meeting either before or after the holding thereof, waives such notice. Any meeting of the Board of Directors, regular or special, may adjourn from time to time to reconvene at the same or some other place, and no notice need be given of any such adjourned meeting other than by announcement. SECTION 2.08. QUORUM. At all meetings of the Board of Directors the presence of a two-thirds' majority of the entire Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which it is by statute, by the Charter or by the By-Laws otherwise provided, the vote of a simple majority of such quorum at a duly constituted meeting shall be sufficient to elect and pass any measure. In the absence of a quorum, the Directors present by majority vote and without notice other than by announcement may adjourn the meeting from time to time until a quorum shall attend. SECTION 2.09. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or committee. 4. ARTICLE III. OFFICERS. SECTION 3.01. EXECUTIVE OFFICERS. The Board of Directors shall choose a President from among the Directors, and a Secretary and a Treasurer who need not be directors. The Board of Directors may choose one or more Vice Presidents. Any two or more of the above-mentioned offices, except those of President and a Vice President, may be held by the same person; but no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument be required by statute, by the Charter, by the By-Laws or by resolution of the Board of Directors to be executed, acknowledged or verified by any two or more officers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor shall have been duly chosen and qualified, or until he shall have resigned or shall have been removed. Any vacancy in any of the above offices may be filled for the unexpired portion of the term of the Board of Directors at any regular or special meeting. SECTION 3.02. PRESIDENT. The President shall preside at all meetings of the stockholders and of the Board of Directors at which he shall be present; he shall have general charge and supervision of the business of the Corporation; he may sign and execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall have been expressly delegated to some other officer or agent of the Corporation; and, in general, he shall perform all duties incident to the office of a president of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors. SECTION 3.03. VICE PRESIDENTS. The Vice President or Vice Presidents, at the request of the President or in his absence or during his inability to act, shall perform the duties and exercise the functions of the President, and when so acting shall have the powers of the President. If there by more than one Vice President, the President may determine which one or more of the Vice Presidents shall perform any of such duties or exercise any of such functions; otherwise any of the Vice Presidents may perform any of such duties or exercise any of such functions. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be assigned to him or them by the Board of Directors or the President. SECTION 3.04. SECRETARY. The Secretary shall keep the minutes of the meetings of stockholders, of the Board of Directors, and of any committees, in books provided for the purpose; he shall see that all notices are duly given in accordance with the provisions of the By-Laws or as required by law; he shall be custodian of the records of the Corporation; and, in general, he shall perform all duties incident to the office of a secretary of a corporation, and such other duties as, from time to time, may be assigned to him by the Board of Directors or by the President. 6. SECTION 4.04. RECORD DATES. The Board of Directors is hereby empowered to fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of stockholders, or stockholders entitled to receive payment of any dividend or the allotment of any rights, or in order to make a determination of stockholders for any other proper purpose. SECTION 4.05. NEW CERTIFICATES. In case any certificate of stock is lost, stolen, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof upon such terms and conditions as it may deem advisable; or the Board of Directors may delegate such power to any officer or officers, in their discretion, may refuse to issue such new certificate save upon the order of some court having jurisdiction in the premises. ARTICLE V. FINANCE SECTION 5.01. CHECKS, DRAFTS, ETC. Checks, drafts, and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in the amount of Fifty Thousand Dollars ($50,000) or less, shall, unless otherwise provided by resolution of the Board of Directors, be signed by either the President Vice President-Finance, or the Treasurer. Checks, drafts, and orders for the payment of money, notes and other evidence of indebtedness, issued in the name of the Corporation in an amount in excess of Fifty Thousand Dollars ($50,000), shall, unless otherwise provided by resolution of the Board of Directors, be signed by both the President, Vice President-Finance, or the Treasurer jointly. SECTION 5.02. ANNUAL REPORTS. There shall be prepared annually a full and correct statement of the affairs of the Corporation, including a balance sheet and a financial statement of operations for the preceding fiscal year, which shall be submitted at the annual meeting of the Board of Directors and filed within twenty days thereafter at the principal office of the Corporation in this State. ARTICLE VI. SUNDRY PROVISIONS SECTION 6.01. AMENDMENTS. Any and all provisions of these By-Laws may be altered or repealed and new By-Laws may be adopted at any annual meeting of the stockholders, or at any special meeting called for that purpose. In addition, the Board of Directors shall have the power, at any regular or special meeting thereof, to make and adopt new by-laws or to amend, alter or repeal any by-law of the Corporation. AMENDMENT TO BY-LAWS OF PATS SUPPORT, INC. The undersigned, being the sole shareholder of PATS Support, Inc., a Maryland corporation, hereby amends the By-Laws of the Corporation as follows: a. by deleting from Article III Section 3.01. EXECUTIVE OFFICERS the words "from among the Directors;" from the second line thereof. b. by adding the following sentence between the first and second sentence thereof: The Board of Directors may also elect a chief executive officer and a chief financial officer, each to perform such duties as may be ascribed to the office by the Board of Directors. In all other respects the By-Laws shall remain unchanged. This Amendment has been adopted by the sole shareholder in lieu of a special meeting called for that purpose pursuant to Section 2-408(c) of the Corporations and Associations Article of the MARYLAND ANNOTATED CODE (1993 Repl. Vol., as amended). WITNESS: PATS, Inc., a Maryland corporation Sole Shareholder /s/ Steve Tepper By: /s/ John R. Hinson - -------------------- ----------------------- (SEAL) Steve Tepper John R. Hinson Chief Financial Officer EX-4.1 34 EXHIBIT 4.1 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DECRANE AIRCRAFT HOLDINGS, INC. 12% SENIOR SUBORDINATED NOTES DUE 2008 Guaranteed to the extent set forth herein by AEROSPACE DISPLAY SYSTEMS, INC. AUDIO INTERNATIONAL, INC. AVTECH CORPORATION CORY COMPONENTS, INC. DETTMERS INDUSTRIES, INC. ELSINORE AEROSPACE SERVICES, INC. ELSINORE ENGINEERING, INC. HOLLINGSEAD INTERNATIONAL, INC. TRI-STAR ELECTRONICS INTERNATIONAL, INC. --------------------------- INDENTURE Dated as of October 5, 1998 --------------------------- STATE STREET BANK AND TRUST COMPANY TRUSTEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS-REFERENCE TABLE* --------------------------
Trust Indenture Act Section Indenture Section 310 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03 (iv)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03 313(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 (b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 7.07 (v)(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02 (vi)(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 314(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 11.02 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04 (c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04 (c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (vii)(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NA 315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05, 11.02 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 316 (a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . . . . 2.09 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.05 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04 (a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12 317 (a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08 (a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04 318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. TABLE OF CONTENTS
PAGE ---- ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . 1 SECTION 1.01. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. OTHER DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 17 SECTION 1.03. INCORPORATION OF TIA PROVISIONS. . . . . . . . . . . . . . . 18 SECTION 1.04. RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . . . 18 ARTICLE 2. THE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.01. FORM AND DATING. . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.02. EXECUTION AND AUTHENTICATION . . . . . . . . . . . . . . . . 20 SECTION 2.03. REGISTRAR AND PAYING AGENT . . . . . . . . . . . . . . . . . 20 SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . . . . 21 SECTION 2.05. HOLDER LISTS . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 2.06. TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . . . 21 SECTION 2.07. REPLACEMENT NOTES. . . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.08. OUTSTANDING NOTES. . . . . . . . . . . . . . . . . . . . . . 33 SECTION 2.09. TREASURY NOTES . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.10. TEMPORARY NOTES. . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.11. CANCELLATION . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 2.12. DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE 3. REDEMPTION AND PREPAYMENT. . . . . . . . . . . . . . . . . . 35 SECTION 3.01. NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . . . . 35 SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. . . . . . . . . . . . . . 35 SECTION 3.03. NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . 35 SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . . . . 36 SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. . . . . . . . . . . . . . . . . 36 SECTION 3.06. NOTES REDEEMED IN PART . . . . . . . . . . . . . . . . . . . 37 SECTION 3.07. OPTIONAL REDEMPTION. . . . . . . . . . . . . . . . . . . . . 37 SECTION 3.08. MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . . . . 38 SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. . . . . 38 ARTICLE 4. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 4.01. PAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . . . 40 SECTION 4.03. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 4.04. COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . . . 41 SECTION 4.05. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.06. STAY, EXTENSION AND USURY LAWS . . . . . . . . . . . . . . . 41 SECTION 4.07. RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . . . 42 SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK . 46 SECTION 4.10. ASSET SALES. . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 4.11. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . 50 SECTION 4.12. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 i SECTION 4.13. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . . . 51 SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL . . . . . . . . . 51 SECTION 4.15. NO SENIOR SUBORDINATED INDEBTEDNESS. . . . . . . . . . . . . 52 SECTION 4.16. SALE AND LEASEBACK TRANSACTIONS. . . . . . . . . . . . . . . 52 SECTION 4.17. ACCOUNTS RECEIVABLE FACILITY . . . . . . . . . . . . . . . . 53 SECTION 4.18. ADDITIONAL NOTE GUARANTEES . . . . . . . . . . . . . . . . . 53 ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS . . . . . . . . . . 53 SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. . . . . . . . . . . . . . 54 ARTICLE 6. DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . 54 SECTION 6.01. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 54 SECTION 6.02. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 6.03. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 6.04. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . . . 56 SECTION 6.05. CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . . . . 57 SECTION 6.06. LIMITATION ON SUITS. . . . . . . . . . . . . . . . . . . . . 57 SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. . . . . . . . 57 SECTION 6.08. COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . . . 58 SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . . . 58 SECTION 6.10. PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 6.11. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . . . 59 ARTICLE 7. TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 7.01. DUTIES OF TRUSTEE. . . . . . . . . . . . . . . . . . . . . . 59 SECTION 7.02. RIGHTS OF TRUSTEE. . . . . . . . . . . . . . . . . . . . . . 60 SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . 61 SECTION 7.04. TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . . . 61 SECTION 7.05. NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . . . 61 SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES . . . . . . . . . 61 SECTION 7.07. COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . . . 62 SECTION 7.08. REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . . . 62 SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC . . . . . . . . . . . . . . 63 SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. . . . . . . . . . . . . . . . 63 SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER . . . . . . 64 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . 64 SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE . . 64 SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . . . 64 SECTION 8.03. COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . . . 65 SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE . . . . . . . . . 65 SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . 66 SECTION 8.06. REPAYMENT TO ISSUER. . . . . . . . . . . . . . . . . . . . . 67 SECTION 8.07. REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . . . 67 ii ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . 67 SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. . . . . . . . . . . . . 67 SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES . . . . . . . . . . . . . . 68 SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. . . . . . . . . . . . . 70 SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. . . . . . . . . . . . . . 70 SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES . . . . . . . . . . . . . . 70 SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . . . . . 70 ARTICLE 10. SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 10.01. AGREEMENT TO SUBORDINATE . . . . . . . . . . . . . . . . . . 70 SECTION 10.02. CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . 71 SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY . . . . . . . . . . . . 71 SECTION 10.04. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS. . . . . . . . . . 72 SECTION 10.05. ACCELERATION OF SECURITIES . . . . . . . . . . . . . . . . . 72 SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. . . . . . . . . . . . . 72 SECTION 10.07. NOTICE BY ISSUER . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 10.08. SUBROGATION. . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 10.09. RELATIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY ISSUER. . . . . . . . . 74 SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE . . . . . . . . . . 74 SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT . . . . . . . . . . . . . 74 SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. . . . . . . . . . . . 74 SECTION 10.14. NO WAIVER OF SUBORDINATION PROVISIONS. . . . . . . . . . . . 75 SECTION 10.15. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 75 ARTICLE 11. NOTE GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 11.01. GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE. . . . . . . . . . . . . . . 76 SECTION 11.03. LIMITATION ON GUARANTOR LIABILITY. . . . . . . . . . . . . . 76 SECTION 11.04. EXECUTION AND DELIVERY OF NOTE GUARANTEE . . . . . . . . . . 77 SECTION 11.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS . . . . . 77 SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS. . . . . . . . . . . . . . 78 ARTICLE 12. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 78 SECTION 12.01. TRUST INDENTURE ACT CONTROLS . . . . . . . . . . . . . . . . 78 SECTION 12.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 78 SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . 79 SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. . . . . . . . 80 SECTION 12.06. RULES BY TRUSTEE AND AGENTS. . . . . . . . . . . . . . . . . 80 SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 12.08. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . . . 81 SECTION 12.10. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 12.11. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 12.12. COUNTERPART ORIGINALS. . . . . . . . . . . . . . . . . . . . 81 SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC . . . . . . . . . . . . . . 81
iii EXHIBITS EXHIBIT A: FORM OF NOTE EXHIBIT B: FORM OF CERTIFICATE OF TRANSFER EXHIBIT C: FORM OF CERTIFICATE OF EXCHANGE EXHIBIT D: FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR EXHIBIT E: FORM OF SUPPLEMENTAL INDENTURE iv INDENTURE dated as of October 5, 1998, by and among DeCrane Aircraft Holdings, Inc., a Delaware Corporation (the "ISSUER"), Aerospace Display Systems, Inc., a Delaware corporation, Audio International, Inc., an Arkansas corporation, Avtech Corporation, a Washington corporation, Cory Components, Inc., a California corporation, Dettmers Industries, Inc., a Delaware corporation, Elsinore Aerospace Services, Inc., a California corporation, Elsinore Engineering, Inc., a Delaware corporation, Hollingsead International, Inc., a California corporation and Tri-Star Electronics International, Inc., a California corporation (collectively, the "GUARANTORS") and State Street Bank and Trust Company, as trustee (the "TRUSTEE"). The Issuer, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Issuer's 12% Senior Subordinated Notes due 2008 (the "SENIOR SUBORDINATED NOTES") and the new 12% Senior Subordinated Notes due 2008 (the "NEW SENIOR SUBORDINATED NOTES" and, together with the Senior Subordinated Notes, the "NOTES") to be issued pursuant to the terms of the Registration Rights Agreement (defined below). ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "144A GLOBAL NOTE" means the form of the Notes initially sold to QIBs. "ACCOUNTS RECEIVABLE SUBSIDIARY" means an Unrestricted Subsidiary of the Issuer to which the Issuer or any of its Restricted Subsidiaries sells any of its accounts receivable pursuant to a Receivables Facility. "ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (a) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (b) Indebtedness secured by a Lien encumbering an asset acquired by such specified Person at the time such asset is acquired by such specified Person. "ACQUISITION" means the acquisition by an indirect subsidiary of Holdings of at least majority of the outstanding stock of the Issuer, the merger of such subsidiary into the Issuer, the repayment of certain indebtedness of the Issuer, the payment of certain related fees and expenses and the Finance Merger. "ACQUISITION FINANCING" means (i) the issuance and sale by the Issuer of the Notes, (ii) the execution and delivery by the Issuer (or its predecessor) and certain of its subsidiaries of the New Credit Facility and the borrowing thereunder and the issuance and sale by the Issuer (or its predecessor) of bridge notes to finance the Acquisition and (iii) the issuance and sale by Holdings of common stock and preferred stock for consideration, the proceeds of each of which were used to fund the purchase price for the Acquisition. "ADDITIONAL NOTES" means additional Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof. 1 "AFFILIATE" of any specified Person means any other Person which, directly or indirectly, controls, is controlled by or is under direct or indirect common control with, such specified Person. For purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENT" means any Registrar, Paying Agent or co-registrar. "APPLICABLE PROCEDURES" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "ASSET SALE" means (a) the sale, lease, conveyance, disposition or other transfer (a "disposition") of any properties, assets or rights (including, without limitation, by way of a sale and leaseback) (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer and its Subsidiaries taken as a whole will be governed by Sections 4.14 and/or 5.01 and not by Section 4.10), and (b) the issuance, sale or transfer by the Issuer or any of its Restricted Subsidiaries of Equity Interests of any of the Issuer's Restricted Subsidiaries, in the case of either clause (a) or (b), whether in a single transaction or a series of related transactions (i) that have a fair market value in excess of $5.0 million or (ii) for net proceeds in excess of $5.0 million. Notwithstanding the foregoing, the following items shall not be deemed to be Asset Sales: (a) dispositions in the ordinary course of business; (b) a disposition of assets by the Issuer to a Restricted Subsidiary or by a Restricted Subsidiary to the Issuer or to another Restricted Subsidiary; (c) a disposition of Equity Interests by a Restricted Subsidiary to the Issuer or to another Restricted Subsidiary; (d) the sale and leaseback of any assets within 90 days of the acquisition thereof; (e) foreclosures on assets; (f) any exchange of like property pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, for use in a Permitted Business; (g) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary; (h) a Permitted Investment or a Restricted Payment that is permitted by Section 4.07 hereof; and (i) sales of accounts receivable, or participations therein, in connection with any Receivables Facility. "ATTRIBUTABLE INDEBTEDNESS" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "BOARD OF DIRECTORS" means the Board of Directors of the Issuer, or any authorized committee of the Board of Directors. "BRIDGE NOTES" means the $100.0 million of Senior Subordinated Increasing Rate Notes issued by DeCrane Finance Co. to DLJ Bridge Finance, Inc. "BUSINESS DAY" means any day other than a Legal Holiday. 2 "CAPITAL EXPENDITURE INDEBTEDNESS" means Indebtedness incurred by any Person to finance the purchase or construction or any property or assets acquired or constructed by such Person which have a useful life or more than one year so long as (a) the purchase or construction price for such property or assets is included in "addition to property, plant or equipment" in accordance with GAAP, (b) the acquisition or construction of such property or assets is not part of any acquisition of a Person or line of business and (c) such Indebtedness is incurred within 90 days of the acquisition or completion of construction of such property or assets. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (a) in the case of a corporation, corporate stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (i) Government Securities, (ii) any certificate of deposit maturing not more than 365 days after the date of acquisition issued by, or demand deposit or time deposit of, an Eligible Institution or any lender under the New Credit Facility, (iii) commercial paper maturing not more than 365 days after the date of acquisition of an issuer (other than an Affiliate of the Issuer) with a rating, at the time as of which any investment therein is made, of "A-3" (or higher) according to S&P or "P-2" (or higher) according to Moody's or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments, (iv) any bankers acceptances of money market deposit accounts issued by an Eligible Institution and (v) any fund investing exclusively in investments of the types described in clauses (i) through (iv) above and (vi) in the case of any Subsidiary organized or having its principal place of business outside the United States, investments denominated in the currency of the jurisdiction in which such Subsidiary is organized or has its principal place of business which are similar to the items specified in clauses (i) through (v) above (including without limitation any deposit with any bank that is a lender to any such Subsidiary). "CEDEL" means Cedel Bank, societe anonyme. "CHANGE OF CONTROL" means the occurrence of any of the following: (a) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Issuer and its Subsidiaries, taken as a whole, to any "person" or "group" (as such terms are used in Section 13(d) of the Exchange Act), other than the Principals and their Related Parties; (b) the adoption of a plan for the liquidation or dissolution of the Issuer; (c) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Section 13(d) of the Exchange Act), other than the Principals and their Related Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly through one or more intermediaries, of 50% or more of the voting power of the outstanding voting stock of the Issuer; or (d) the first day on which a majority of the members of the board of directors of the Issuer are not Continuing Members. 3 "COMMISSION" means the Securities and Exchange Commission. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus, to the extent deducted in computing Consolidated Net Income, (a) an amount equal to any extraordinary or non-recurring loss plus any net loss realized in connection with an Asset Sale, (b) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, (c) Fixed Charges of such Person for such period, (d) depreciation, amortization (including amortization of goodwill and other intangibles) and all other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period), including charges related to non-cash minority interests of such Person and its Restricted Subsidiaries for such period, (e) net periodic post-retirement benefits, (f) other income or expense net as set forth on the face of such Person's statement of operations, (g) expenses and charges of the Issuer related to the Acquisition, the New Credit Facility and the application of the proceeds thereof which are paid, taken or otherwise accounted for within 180 days of the consummation of the Acquisition, and (h) any non-capitalized transaction costs incurred in connection with actual or proposed financings, acquisition or divestitures (including, but not limited to, financing and refinancing fees and costs incurred in connection with the Acquisition), in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, the Fixed Charges of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person. "CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any period, the sum of, without duplication, (a) the interest expense of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP (including amortization of original issue discount, non-cash interest payments, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Indebtedness, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments, if any, pursuant to Hedging Obligations; PROVIDED that in no event shall any amortization of deferred financing costs be included in Consolidated Interest Expense); and (b) the consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued; PROVIDED, however, that Receivables Fees shall be deemed not to constitute Consolidated Interest Expense. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary shall be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; PROVIDED that (a) the Net Income (or loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary thereof, (b) the Net Income (or loss) of any Restricted Subsidiary other than a Subsidiary organized or having its principal place of business outside the United States shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net 4 Income (or loss) is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary, (c) the Net Income (or loss) of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (d) the cumulative effect of a change in accounting principles shall be excluded and (e) expenses and charges related to the Acquisition, the New Credit Facility and the application of the proceeds thereof which are paid, taken or otherwise accounted for within 180 days of the consummation of the Acquisition shall be excluded. "CONTINUING MEMBERS" means, as of any date of determination, any member of the board of directors of the Issuer who (a) was a member of such board of directors immediately after consummation of the Acquisition or (b) was nominated for election or elected to such board of directors with the approval of, or whose election to the board of directors was ratified by, at least a majority of the Continuing Members who were members of such board of directors at the time of such nomination or election or any successor Continuing Directors appointed by such Continuing Directors (or their successors). "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Issuer. "CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DEFINITIVE NOTE" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "DEPOSITARY" means The Depository Trust Company. "DESIGNATED NONCASH CONSIDERATION" means the fair market value of non-cash consideration received by the Issuer or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate, setting forth the basis of such valuation, executed by the principal executive officer and the principal financial officer of the Issuer, less the amount of cash or Cash Equivalents received in connection with a sale of such Designated Noncash Consideration. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable), or upon the happening of any event (other than any event solely within the control of the issuer thereof), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is exchangeable for Indebtedness (except to the extent exchangeable at the option of such Person subject to the terms of any debt instrument to which such Person is a party) or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date on which the Notes mature; provided that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Issuer to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the 5 terms of such Capital Stock provide that the Issuer may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof; and provided further that, if such Capital Stock is issued to any plan for the benefit of employees of the Issuer or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer in order to satisfy applicable statutory or regulatory obligations. "DLJMB" means DLJ Merchant Banking Partners II, L.P. and its Affiliates. "DOMESTIC SUBSIDIARY" means a Subsidiary that is organized under the laws of the United States or any State, district or territory thereof other than Audio International Sales, Inc., a U.S. Virgin Islands corporation. "ELIGIBLE INSTITUTION" means a commercial banking institution that has combined capital and surplus not less than $100.0 million or its equivalent in foreign currency, whose short-term debt is rated "A-3" or higher according to Standard & Poor's Ratings Group ("S&P") or "P-2" or higher according to Moody's Investor Services, Inc. ("Moody's") or carrying an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE NOTES" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "EXCHANGE OFFER" has the meaning set forth in the Registration Rights Agreement. "EXCHANGE OFFER REGISTRATION STATEMENT" has the meaning set forth in the Registration Rights Agreement. "EXISTING INDEBTEDNESS" means Indebtedness of the Issuer and its Restricted Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of this Indenture, until such amounts are repaid. "FINANCE MERGER" means the merger of DeCrane Finance Co. with and into DeCrane Aircraft Holdings, Inc. "FIXED CHARGES" means, with respect to any Person for any period, the sum, without duplication, of (a) the Consolidated Interest Expense of such Person for such period and (b) all dividend payments on any series of preferred stock of such Person (other than dividends payable solely in Equity Interests that are not Disqualified Stock), in each case, on a consolidated basis and in accordance with GAAP. 6 "FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period (exclusive of amounts attributable to discontinued operations, as determined in accordance with GAAP, or operations and businesses disposed of prior to the Calculation Date (as defined)) to the Fixed Charges of such Person for such period (exclusive of amounts attributable to discontinued operations, as determined in accordance with GAAP, or operations and businesses disposed of prior to the Calculation Date). In the event that the referent Person or any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, acquisitions that have been made by the Issuer or any of its Subsidiaries, including all mergers or consolidations and any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated to include the Consolidated Cash Flow of the acquired entities on a pro forma basis after giving effect to cost savings resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation practices, consolidation of property, casualty and other insurance coverage and policies, standardization of sales and distribution methods, reductions in taxes other than income taxes and other cost savings reasonably expected to be realized from such acquisition, as determined in good faith by the principal financial officer of the Issuer (regardless of whether such cost savings could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the Commission or any other regulation or policy of the Commission) and without giving effect to clause (c) of the proviso set forth in the definition of Consolidated Net Income. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture. "GLOBAL NOTES" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof. "GLOBAL NOTE LEGEND" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "GOVERNMENT SECURITIES" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "GTP" means Global Technology Partners, LLC and its Affiliates. 7 "GTP INVESTMENT" means the sale by Holdings to GTP of its common stock, preferred stock or warrants to purchase common stock, the purchase price of which will be partially financed by the GTP Loan, and the granting by Holdings to GTP of options to purchase shares of its common stock. "GTP LOANS" means one or more loans by the Issuer or Holdings to GTP to finance GTP's purchase of common stock, preferred stock or warrants to purchase common stock of Holdings; provided, however, that the aggregate principal amount of all such GTP Loans outstanding at any time shall not exceed $2 million. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "GUARANTORS" means (i) each of the Domestic Subsidiaries of the Issuer that is a Wholly Owned Restricted Subsidiary on the date of the Indenture and (ii) any other Subsidiary that executes a Note Guarantee in accordance with the provisions of this Indenture. "HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of such Person under (a) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (b) other agreements or arrangements designed to protect such Person against fluctuations in interest rates and (c) agreements or arrangements designed to protect such Person against fluctuations in exchange rates. "HOLDER" means a Person in whose name a Note is registered. "HOLDINGS" means DeCrane Holdings, Inc., a Delaware corporation, the corporate parent of the Issuer, or its successors. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any Indebtedness of any other Person, PROVIDED that Indebtedness shall not include the pledge by the Issuer of the Capital Stock of an Unrestricted Subsidiary of the Issuer to secure Non-Recourse Debt of such Unrestricted Subsidiary. The amount of any Indebtedness outstanding as of any date shall be (a) the accreted value thereof (together with any interest thereon that is more than 30 days past due), in the case of any Indebtedness that does not require current payments of interest, and (b) the principal amount thereof, in the case of any other Indebtedness; PROVIDED that the principal amount of any Indebtedness that is denominated in any currency other than United States dollars shall be the amount thereof, as determined pursuant to the foregoing provision, converted into United States dollars at the Spot Rate in effect on the date that such Indebtedness was incurred (or, if such indebtedness was incurred prior to the date of the Indenture, the Spot Rate in effect on the date of this Indenture). "INDENTURE" means this Indenture, as amended or supplemented from time to time. 8 "INDIRECT PARTICIPANT" means a Person who holds a beneficial interest in a Global Note through a Participant. "INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees by the referent Person of, and Liens on any assets of the referent Person securing, Indebtedness or other obligations of other Persons), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP, PROVIDED that an investment by the Issuer for consideration consisting of common equity securities of the Issuer shall not be deemed to be an Investment. If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Issuer such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Issuer, the Issuer shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07 hereof. "LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or the city in which the principal corporate trust office of the Trustee is located, or at a place of payment, are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "LETTER OF TRANSMITTAL" means the letter of transmittal to be prepared by the Issuer and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "LIQUIDATED DAMAGES" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "MANAGEMENT LOANS" means one or more loans by the Issuer or Holdings to officers and/or directors of the Issuer and any of its Restricted Subsidiaries to finance the purchase by such officers and directors of common stock of Holdings; PROVIDED, however, that the aggregate principal amount of all such Management Loans outstanding at any time shall not exceed $5.0 million. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (a) any gain (or loss), together with any related provision for taxes on such gain (or 9 loss), realized in connection with (i) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (ii) the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (b) any extraordinary or nonrecurring gain (or loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (or loss). "NET PROCEEDS" means the aggregate cash proceeds received by the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of, without duplication, (a) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions, recording fees, title transfer fees and appraiser fees and cost of preparation of assets for sale) and any relocation expenses incurred as a result thereof, (b) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (c) amounts required to be applied to the repayment of Indebtedness (other than revolving credit Indebtedness incurred pursuant to the New Credit Facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and (d) any reserve established in accordance with GAAP or any amount placed in escrow, in either case for adjustment in respect of the sale price of such asset or assets until such time as such reserve is reversed or such escrow arrangement is terminated, in which case Net Proceeds shall include only the amount of the reserve so reversed or the amount returned to the Issuer or its Restricted Subsidiaries from such escrow arrangement, as the case may be. "NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of August 28, 1998 among the Issuer, various financial institutions party thereto, DLJ Capital Funding, Inc., as syndication agent, and The First National Bank of Chicago, as administrative agent, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, modified, renewed, refunded, replaced or refinanced from time to time, including any agreement (i) extending or shortening the maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder, PROVIDED that on the date such Indebtedness is incurred it would not be prohibited by clause (i) of Section 4.09 hereof or (iv) otherwise altering the terms and conditions thereof. Indebtedness under the New Credit Facility outstanding on the date of this Indenture shall be deemed to have been incurred on such date in reliance on the first paragraph of Section 4.09 hereof. "NON-RECOURSE DEBT" means Indebtedness (i) no default with respect to, which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Issuer or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (ii) as to which the lenders have been notified in writing that they will not have any recourse to the stock (other than the stock of an Unrestricted Subsidiary pledged by the Issuer to secure debt of such Unrestricted Subsidiary) or assets of the Issuer or any of its Restricted Subsidiaries; PROVIDED that in no event shall Indebtedness of any Unrestricted Subsidiary fail to be Non-Recourse Debt solely as a result of any default provisions contained in a guarantee thereof by the Issuer or any of its Restricted Subsidiaries if the Issuer or such Restricted Subsidiary was otherwise permitted to incur such guarantee pursuant to this Indenture. "NON-U.S. PERSON" means a Person who is not a U.S. Person. 10 "NOTE CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "NOTE GUARANTEE" means the Guarantee by each Guarantor of the Issuer's payment obligations under this Indenture and the Notes, including any subsequent Guarantees executed pursuant to the provisions of this Indenture. "NOTES" has the meaning assigned to it in the preamble to this Indenture. "OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFERING" means the offering of the Notes by the Issuer. "OFFICER" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "OFFICERS' CERTIFICATE" means a certificate signed on behalf of the Issuer by two Officers of the Issuer, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Issuer, that meets the requirements of Sections 12.04 and 12.05 hereof. "OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Sections 12.04 and 12.05 hereof. The counsel may be an employee of or counsel to the Issuer, any Subsidiary of the Issuer or the Trustee. "PARI PASSU INDEBTEDNESS" means Indebtedness of the Issuer that ranks PARI PASSU in right of payment to the Notes. "PARTICIPANT" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "PARTICIPATING BROKER-DEALER" has the meaning set forth in the Registration Rights Agreement. "PERMITTED BUSINESS" means the avionics manufacturing industry and any business in which the Issuer and its Restricted Subsidiaries are engaged on the date of this Indenture or any business reasonably related, incidental or ancillary thereto. "PERMITTED INVESTMENTS" means (a) any Investment in the Issuer or in a Restricted Subsidiary of the Issuer, (b) any Investment in cash or Cash Equivalents, (c) any Investment by the Issuer or any Restricted Subsidiary of the Issuer in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Issuer or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Wholly Owned Restricted Subsidiary of the Issuer, (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof, (e) any Investment acquired solely in exchange for Equity Interests (other than Disqualified Stock) of the 11 Issuer, (f) any Investment in a Person engaged in a Permitted Business (other than an Investment in an Unrestricted Subsidiary) having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (f) that are at that time outstanding, not to exceed 15% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value), (g) Investments relating to any special purpose Wholly Owned Subsidiary of the Issuer organized in connection with a Receivables Facility that, in the good faith determination of the board of directors of the Issuer, are necessary or advisable to effect such Receivables Facility and (h) the Management Loans and GTP Loans. "PERMITTED LIENS" means: (i) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Issuer or any Restricted Subsidiary, PROVIDED that such Liens were not incurred in contemplation of such merger or consolidation and do not secure any property or assets of the Issuer or any Restricted Subsidiary other than the property or assets subject to the Liens prior to such merger or consolidation; (ii) Liens existing on the date of this Indenture; (iii) Liens securing Indebtedness consisting of Capitalized Lease Obligations, purchase money Indebtedness, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred solely for the purpose of financing all or any part of the purchase price or cost of construction or installation of assets used in the business of the Issuer or its Restricted Subsidiaries, or repairs, additions or improvements to such assets, PROVIDED that (A) such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, additional or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness), (B) such Liens do not extend to any other assets of the Issuer or its Restricted Subsidiaries (and, in the case of repair, addition or improvements to any such assets, such Lien extends only to the assets (and improvements thereto or thereon) repaired, added to or improved), (C) the Incurrence of such Indebtedness is permitted by Section 4.09 hereof and (D) such Liens attach within 365 days of such purchase, construction, installation, repair, addition or improvement; (iv) Liens to secure any refinancings, renewals, extensions, modification or replacements (collectively, "refinancing") (or successive refinancings), in whole or in part, of any Indebtedness secured by Liens referred to in the clauses above so long as such Lien does not extend to any other property (other than improvements thereto); (v) Liens securing letters of credit entered into in the ordinary course of business and consistent with past business practice; (vi) Liens on and pledges of the capital stock of any Unrestricted Subsidiary securing Non-Recourse Debt of such Unrestricted Subsidiary; (vii) Liens securing Indebtedness (including all Obligations) under the New Credit Facility; and (viii) other Liens securing Indebtedness that is permitted by the terms of this Indenture to be outstanding having an aggregate principal amount at any one time outstanding not to exceed $50.0 million. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Issuer or any of its Restricted Subsidiaries issued within 60 days after repayment of, in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Issuer or any of its Restricted Subsidiaries; PROVIDED that (a) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus premium, if any, and accrued interest on the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith), (b) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, and (c) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is 12 subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Notes on terms at least as favorable, taken as a whole, to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "PRINCIPALS" means DLJMB. "PRIVATE PLACEMENT LEGEND" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "PUBLIC EQUITY OFFERING" means any issuance of common stock by the Issuer (other than to Holdings and other than Disqualified Stock) or common stock or preferred stock by Holdings (other than Disqualified Stock) registered pursuant to the Securities Act, other than issuances registered on Form S-8 and issuances registered on Form S-4, excluding issuances of common stock pursuant to employee benefit plans of Holdings or the Issuer or otherwise as compensation to employees of the Issuer or Holdings. "QUALIFIED PROCEEDS" means any of the following or any combination of the following: (i) cash; (ii) Cash Equivalents; (iii) assets that are used or useful in a Permitted Business; and (iv) the Capital Stock of any Person engaged in a Permitted Business if, in connection with the receipt by the Issuer or any Restricted Subsidiary of the Issuer of such Capital Stock, (A) such Person becomes a Restricted Subsidiary of the Issuer or any Restricted Subsidiary of the Issuer or (B) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or any Restricted Subsidiary of the Issuer. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "RECEIVABLES FACILITY" means one or more receivables financing facilities, as amended from time to time, pursuant to which the Issuer or any of its Restricted Subsidiaries sells its accounts receivable to an Accounts Receivable Subsidiary. "RECEIVABLES FEES" means distributions or payments made directly or by means of discounts with respect to any participation interests issued or sold in connection with, and other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Receivables Facility. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of October 5, 1998, by and among the Issuer and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time, and, with respect to any Additional Notes, one or more registration rights agreements between the Issuer and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Issuer to the purchasers of Additional Notes to register such Additional Notes under the Securities Act. "REGULATION S" means Regulation S promulgated under the Securities Act. 13 "REGULATION S GLOBAL NOTE" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "REGULATION S PERMANENT GLOBAL NOTE" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend, if applicable, and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "REGULATION S TEMPORARY GLOBAL NOTE" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "RELATED PARTY" means, with respect to any Principal, (i) any controlling stockholder or partner of such Principal on the date of this Indenture, or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding (directly or through one or more Subsidiaries) a 51% or more controlling interest of which consist of the Principals and/or such other Persons referred to in the immediately preceding clauses (i) or (ii). "RESPONSIBLE OFFICER," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the Private Placement Legend. "RESTRICTED GLOBAL NOTE" means a Global Note bearing the Private Placement Legend. "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED PERIOD" means the 40-day restricted period as defined in Regulation S. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "RULE 144" means Rule 144 promulgated under the Securities Act. "RULE 144A" means Rule 144A promulgated under the Securities Act. "RULE 903" means Rule 903 promulgated under the Securities Act. "RULE 904" means Rule 904 promulgated the Securities Act. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHELF REGISTRATION STATEMENT" means the Shelf Registration Statement as defined in the Registration Rights Agreement. 14 "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "SPOT RATE" means, for any currency, the spot rate at which such currency is offered for sale against United States dollars as determined by reference to the New York foreign exchange selling rates, as published in The Wall Street Journal on such date of determination for the immediately preceding business day or, if such rate is not available, as determined in any publicly available source of similar market data. "STATED MATURITY" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "SUBSIDIARY" means, with respect to any Person, (a) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (b) any partnership or limited liability company (i) the sole general partner or the managing general partner or managing member of which is such Person or a Subsidiary of such Person or (ii) the only general partners or managing members of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TAX SHARING AGREEMENT" means any tax sharing agreement or arrangement between the Issuer and Holdings, as the same may be amended from time to time; PROVIDED that in no event shall the amount permitted to be paid pursuant to all such agreements and/or arrangements exceed the amount the Issuer would be required to pay for income taxes were it to file a consolidated tax return for itself and its consolidated Restricted Subsidiaries as if it were a corporation that was a parent of a consolidated group. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "TOTAL ASSETS" means the total consolidated assets of the Issuer and its Restricted Subsidiaries, as shown on the most recent balance sheet (excluding the footnotes thereto) of the Issuer prepared in accordance with GAAP. "TREASURY RATE" means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to September 30, 2003; PROVIDED that if the period from the redemption date to September 30, 2003 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. 15 "TRUSTEE" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "UNRESTRICTED GLOBAL NOTE" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the board of directors as an Unrestricted Subsidiary pursuant to a board resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the Issuer or any Restricted Subsidiary of the Issuer unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Issuer or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Issuer; (c) is a Person with respect to which neither the Issuer nor any of its Restricted Subsidiaries has any direct or indirect obligation (i) to subscribe for additional Equity Interests (other than Investments described in clause (g) of the definition of Permitted Investments) or (ii) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels, of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Issuer or any of its Restricted Subsidiaries. Any such designation by the board of directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Issuer as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, the Issuer shall be in default of such covenant). The board of directors of the Issuer may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Issuer of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under Section 4.09 hereof and (ii) no Default or Event of Default would be in existence following such designation. "U.S. PERSON" means (i) any individual resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any estate of which an executor or administrator is a U.S. Person (other than an estate governed by foreign law and of which at least one executor or administrator is a non-U.S. Person who has sole or shared investment discretion with respect to its assets), (iv) any trust of which any trustee is a U.S. Person (other than a trust of which at least one trustee is a non-U.S. Person who has sole or shared investment discretion with respect to its assets and no beneficiary of the trust (and no settler, if the trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign entity located in the United States, (vi) any non-discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. Person, (vii) any discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States (other than such an account held 16 for the benefit or account of a non-U.S. Person), (viii) any partnership or corporation organized or incorporated under the laws of a foreign jurisdiction and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act (unless it is organized or incorporated and owned, by "accredited investors" within the meaning of Rule 501(a) under the Securities Act who are not natural persons, estates or trusts); provided that the term "U.S. Person" shall not include (A) a branch or agency of a U.S. Person that is located and operating outside the United States for valid business purposes as a locally regulated branch or agency engaged in the banking or insurance business, (B) any employee benefit plan established and administered in accordance with the law, customary practices and documentation of a foreign country and (C) the international organizations set forth in Section 902(o)(7) of Regulation S under the Securities Act and any other similar international organizations, and their agencies, affiliates and pension plans. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person. "WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted Subsidiary of such Person all the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of such Person or by such Person and one or more Wholly Owned Restricted Subsidiaries of such Person. SECTION 1.02. OTHER DEFINITIONS.
Defined in Term Section "Affiliate Transaction" . . . . . . . . . . . . . . . . . 4.11 "Asset Sale". . . . . . . . . . . . . . . . . . . . . . . 4.10 "Asset Sale Offer". . . . . . . . . . . . . . . . . . . . 3.09 "Authentication Order". . . . . . . . . . . . . . . . . . 2.02 "Bankruptcy Law". . . . . . . . . . . . . . . . . . . . . 4.01 "Change of Control Offer" . . . . . . . . . . . . . . . . 4.15 "Change of Control Payment" . . . . . . . . . . . . . . . 4.15 "Change of Control Payment Date" . . . . . . . . . . . . 4.15 "Covenant Defeasance" . . . . . . . . . . . . . . . . . . 8.03 "Designated Senior Indebtedness". . . . . . . . . . . . . 10.02 "Event of Default". . . . . . . . . . . . . . . . . . . . 6.01 "Excess Proceeds" . . . . . . . . . . . . . . . . . . . . 4.10 "incur" . . . . . . . . . . . . . . . . . . . . . . . . . 4.09 "Legal Defeasance" . . . . . . . . . . . . . . . . . . . 8.02 17 "Offer Amount". . . . . . . . . . . . . . . . . . . . . . 3.09 "Offer Period". . . . . . . . . . . . . . . . . . . . . . 3.09 "Paying Agent". . . . . . . . . . . . . . . . . . . . . . 2.03 "Permitted Junior Securities" . . . . . . . . . . . . . . 10.02 "Permitted Indebtedness". . . . . . . . . . . . . . . . . 4.09 "Purchase Date" . . . . . . . . . . . . . . . . . . . . . 3.09 "Registrar" . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Restricted Payments" . . . . . . . . . . . . . . . . . . 4.07 "Representative". . . . . . . . . . . . . . . . . . . . . 10.02 "Senior Indebtedness" . . . . . . . . . . . . . . . . . . 10.02
SECTION 1.03. INCORPORATION OF TIA PROVISIONS. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "INDENTURE SECURITIES" means the Notes; "INDENTURE SECURITY HOLDER" means a Holder of a Note; "INDENTURE TO BE QUALIFIED" means this Indenture; "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; and "OBLIGOR" on the Notes and the Note Guarantees means the Issuer and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule under the TIA have the meanings so assigned to them. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and 18 (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the Commission from time to time. ARTICLE 2. THE NOTES SECTION 2.01. FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof, except that Notes used to pay Liquidated Damages may be in other denominations. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Issuer, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) GLOBAL NOTES. Notes issued in global form shall be substantially in the form of Exhibit A-1 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) TEMPORARY GLOBAL NOTES. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of Exhibit A-2 attached hereto, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Issuer and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note, all as contemplated by Section 2.06 (a)(ii) hereof), and (ii) an Officers' Certificate from the Issuer. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary 19 Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (d) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Cedel Bank. SECTION 2.02. EXECUTION AND AUTHENTICATION. One Officer shall sign the Notes for the Issuer by manual or facsimile signature. The Issuer's seal may be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Issuer signed by one Officer (an "AUTHENTICATION ORDER"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes plus Notes issued to pay Liquidated Damages pursuant to paragraph 2 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount, plus (i) any additional series of Notes permitted to be issued pursuant to Section 4.09(a) hereof and (ii) except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Issuer to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuer. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Issuer shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("REGISTRAR") and an office or agency where Notes may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Issuer may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuer may change any Paying Agent or Registrar without notice to any Holder. The Issuer shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuer fails to appoint or maintain another entity as Registrar or Paying Agent, the 20 Trustee shall act as such. The Issuer or any of their respective Subsidiaries may act as Paying Agent or Registrar. The Issuer initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Issuer initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Issuer shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Issuer in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Issuer at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Issuer or a Subsidiary) shall have no further liability for the money. If the Issuer or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Issuer, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Issuer shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Issuer shall otherwise comply with TIA Section 312(a). SECTION 2.06. TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Issuer for Definitive Notes if (i) the Issuer delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuer within 90 days after the date of such notice from the Depositary or (ii) the Issuer in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; PROVIDED that in no event shall the Regulation S Temporary Global Note be exchanged by the Issuer for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act or (ii) there shall have occurred and be continuing a default or an Event of Default and the Trustee receives a request from the Depositary to issue Definitive Notes. Upon the occurrence of either 21 of the preceding events in (i) or (ii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME GLOBAL NOTE. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; PROVIDED, HOWEVER, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN GLOBAL NOTES. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Registrar either (A)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; PROVIDED that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Issuer in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall 22 be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) TRANSFER OF BENEFICIAL INTERESTS TO ANOTHER RESTRICTED GLOBAL NOTE. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof. (iv) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR BENEFICIAL INTERESTS IN THE UNRESTRICTED GLOBAL NOTE. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an 23 Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Issuer shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) TRANSFER OR EXCHANGE OF BENEFICIAL INTERESTS FOR DEFINITIVE NOTES. (i) BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the 24 Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Issuer or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuer shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer; 25 (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuer shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS. (i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person 26 who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Issuer or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, and in the case of clause (c) above, the Regulation S Global Note. (ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of 27 Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Issuer shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. 28 (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) RESTRICTED DEFINITIVE NOTES TO RESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: 29 (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Issuer to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) EXCHANGE OFFER. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Issuer shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Issuer, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Issuer shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE 30 TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OR REGULATION D UNDER THE SECURITIES ACT (AN "IAI")), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE 31 MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF DECRANE AIRCRAFT HOLDINGS, INC." (iii) REGULATION S TEMPORARY GLOBAL NOTE LEGEND. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. (i) To permit registrations of transfers and exchanges, the Issuer shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Issuer's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuer may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.06, 3.09, 4.10 and 4.14 hereof). 32 (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Issuer shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (c) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuer may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest and Liquidated Damages, if any, on such Notes and for all other purposes, and none of the Trustee, any Agent or the Issuer shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii)All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. SECTION 2.07. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or the Issuer and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuer shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Issuer, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuer to protect the Issuer, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuer may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Issuer and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08. OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note 33 effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Issuer or an Affiliate of the Issuer holds the Note; however, Notes held by the Issuer or a Subsidiary of the Issuer shall not be deemed to be outstanding for purposes of Section 3.07 hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Issuer, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. SECTION 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuer, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. SECTION 2.10. TEMPORARY NOTES. Until certificates representing Notes are ready for delivery, the Issuer may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Issuer considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Issuer shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11. CANCELLATION. The Issuer at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes shall be delivered to the Issuer. The Issuer may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. DEFAULTED INTEREST. 34 If the Issuer defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Issuer shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Issuer shall fix or cause to be fixed each such special record date and payment date, PROVIDED that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Issuer (or, upon the written request of the Issuer, the Trustee in the name and at the expense of the Issuer) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. ARTICLE 3. REDEMPTION AND PREPAYMENT SECTION 3.01. NOTICES TO TRUSTEE. If the Issuer elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED that no Notes of $1,000 or less shall be redeemed in part. The Trustee shall promptly notify the Issuer in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. Subject to the provisions of Section 3.09 hereof, notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. 35 The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Issuer defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Issuer's request, the Trustee shall give the notice of redemption in the Issuer's name and at its expense; PROVIDED, HOWEVER, that the Issuer shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. One Business Day prior to the redemption date, the Issuer shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Issuer any money deposited with the Trustee or the Paying Agent by the Issuer in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Issuer complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon 36 surrender for redemption because of the failure of the Issuer to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest and Liquidated Damages, if any, not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Issuer shall issue and, upon the Issuer's written request, the Trustee shall authenticate for the Holder at the expense of the Issuer a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07. OPTIONAL REDEMPTION. (a) Except as provided below, the Notes will not be redeemable at the Issuer's option prior to September 30, 2003. Thereafter, the Notes will be subject to redemption at any time at the option of the Issuer, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on September 30 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2003. . . . . . . . . . . . . 106.000% 2004. . . . . . . . . . . . . 104.000% 2005. . . . . . . . . . . . . 102.000% 2006 and thereafter . . . . . 100.000%
Notwithstanding the foregoing, on or prior to September 30, 2001, the Issuer may redeem up to 35% of the aggregate principal amount of Notes ever issued under this Indenture in cash at a redemption price of 112% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; PROVIDED that at least 65% of the aggregate principal amount of Notes ever issued under this Indenture remains outstanding immediately after the occurrence of any such redemption; and PROVIDED further that such redemption shall occur within 90 days of the date of the closing of any such Public Equity Offering. In addition, at any time prior to September 30, 2003, the Issuer may, at its option upon the occurrence of a Change of Control, redeem the Notes, in whole but not in part, upon not less than 30 nor more than 60 days' prior notice (but in no event may any such redemption occur more than 60 days after the occurrence of such Change of Control), in cash at a redemption price equal to (i) the present value of the sum of all the remaining interest (excluding accrued and unpaid interest, if any), premium and principal payments that would become due on the Notes as if the Notes were to remain outstanding and be redeemed on September 30, 2003, computed using a discount rate equal to the Treasury Rate plus 50 basis points, plus (ii) accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. 37 (b) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08. MANDATORY REDEMPTION. The Issuer is not required to make mandatory redemption of, or sinking fund payments with respect to, the Notes. SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS. In the event that, pursuant to Section 4.10 hereof, the Issuer shall be required to commence an offer to all Holders to purchase Notes (an "ASSET SALE OFFER"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "OFFER PERIOD"). No later than five Business Days after the termination of the Offer Period (the "PURCHASE DATE"), the Issuer shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "OFFER AMOUNT") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Issuer shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Issuer defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; 38 (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Issuer, a depositary, if appointed by the Issuer, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Issuer, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Issuer shall select the Notes to be purchased on a PRO RATA basis (with such adjustments as may be deemed appropriate by the Issuer so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Issuer shall, to the extent lawful, accept for payment, on a PRO RATA basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Issuer in accordance with the terms of this Section 3.09. The Issuer, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuer for purchase, and the Issuer shall promptly issue a new Note, and the Trustee, upon written request from the Issuer shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuer to the Holder thereof. The Issuer shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS SECTION 4.01. PAYMENT OF NOTES. The Issuer shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Issuer or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Issuer in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then 39 due. The Issuer shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Issuer shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; they shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Issuer may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Issuer of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Issuer shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Issuer hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Issuer in accordance with Section 2.03 hereof. SECTION 4.03. REPORTS. Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Issuer will furnish to the Holders of Notes (a) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuer were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Issuer's certified independent accountants (PROVIDED that the Issuer may deliver financial information with respect to its (direct or indirect) parent if the Issuer delivers to the Trustee an Officer's Certificate certifying that such financial information is substantially equivalent to the financial information with respect to the Issuer) and (b) all current reports that would be required to be filed with the Commission on Form 8-K if the Issuer were required to file such reports, in each case, within the time periods specified in the Commission's rules and regulations. In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the rules and regulations of the Commission, the Issuer will file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Issuer and the Guarantors have agreed that, for so long 40 as any Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 4.04. COMPLIANCE CERTIFICATE. (a) The Issuer and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Issuer and its Subsidiaries during the preceding fiscal year have been made under the supervision of the signing Officers with a view to determining whether the Issuer have kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Issuer has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Issuer is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest or Liquidated Damages, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Issuer is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Issuer's independent public accountants (which shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Issuer has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Issuer shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Issuer is taking or proposes to take with respect thereto. SECTION 4.05. TAXES. The Issuer shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.06. STAY, EXTENSION AND USURY LAWS. The Issuer and each of the Guarantors covenant (to the extent that they may lawfully do so) that they shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, 41 that may affect the covenants or the performance of this Indenture; and the Issuer and each of the Guarantors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and covenant that they shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07. RESTRICTED PAYMENTS. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any other payment or distribution on account of the Issuer's or any of its Restricted Subsidiaries' Equity Interests (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Issuer or dividends or distributions payable to the Issuer or any Wholly Owned Restricted Subsidiary of the Issuer); (b) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Issuer, any of its Restricted Subsidiaries or any other Affiliate of the Issuer (other than any such Equity Interests owned by the Issuer or any Restricted Subsidiary of the Issuer); (c) make any principal payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value, any Indebtedness of the Issuer that is subordinated in right of payment to the Notes, except in accordance with the mandatory redemption or repayment provisions set forth in the original documentation governing such Indebtedness (but not pursuant to any mandatory offer to repurchase upon the occurrence of any event); or (d) make any Restricted Investment (all such payments and other actions set forth in clauses (a) through (d) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment: (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (ii) the Issuer would, immediately after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; and (iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (a) (to the extent that the declaration of any dividend referred to therein reduces amounts available for Restricted Payments pursuant to this clause (iii)), (b) through (i), (k), (l), (o), (p) and (r) of the next succeeding paragraph), is less than the sum, without duplication, of (A) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period) commencing October 1, 1998 to the end of the Issuer's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (B) 100% of the Qualified Proceeds received by the Issuer on or after the date of this Indenture from contributions to the Issuer's capital or from the issue or sale on or after the date of this Indenture of Equity Interests of the Issuer or of Disqualified Stock or convertible debt securities of the Issuer to the extent that they have been converted into such Equity Interests (other than Equity Interests, Disqualified Stock or convertible debt securities sold to a Subsidiary of the Issuer and other than Disqualified Stock or convertible debt securities that 42 have been converted into Disqualified Stock), plus (C) the amount equal to the net reduction in Investments in Persons after the date of this Indenture who are not Restricted Subsidiaries (other than Permitted Investments) resulting from (x) Qualified Proceeds received as a dividend, repayment of a loan or advance or other transfer of assets (valued at the fair market value thereof) to the Issuer or any Restricted Subsidiary from such Persons, (y) Qualified Proceeds received upon the sale or liquidation of such Investment and (z) the redesignation of Unrestricted Subsidiaries (excluding any increase in the amount available for Restricted Payments pursuant to clause (j) or (n) below arising from the redesignation of such Restricted Subsidiary) whose assets are used or useful in, or which is engaged in, one or more Permitted Business as Restricted Subsidiaries (valued (proportionate to the Issuer's equity interest in such Subsidiary) at the fair market value of the net assets of such Subsidiary at the time of such redesignation). The foregoing provisions will not prohibit: (a) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (b) (i) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Issuer (the "RETIRED CAPITAL STOCK") in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Issuer) of, other Equity Interests of the Issuer (other than any Disqualified Stock) (the "REFUNDING CAPITAL STOCK"), PROVIDED that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (iii)(B) of the preceding paragraph; (c) the defeasance, redemption, repurchase, retirement or other acquisition of subordinated Indebtedness of the Issuer with the net cash proceeds from an incurrence of, or in exchange for, Permitted Refinancing Indebtedness; (d) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Issuer or Holdings held by any member of Holdings' or the Issuer's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement or stock option agreement and any dividend to Holdings to fund any such repurchase, redemption, acquisition or retirement, PROVIDED that (i) the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests shall not exceed (x) $4.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following clause (y)) of $7.0 million in any calendar year), plus (y) the aggregate cash proceeds received by the Issuer during such calendar year from any reissuance of Equity Interests by the Issuer or Holdings to members of management of the Issuer and its Restricted Subsidiaries and (ii) no Default or Event of Default shall have occurred and be continuing immediately after such transaction; (e) payments and transactions in connection with the Acquisition, the Acquisition Financing, the Offering, the New Credit Facility (including commitment, syndication and arrangement fees payable thereunder) and the application of the proceeds thereof (including the purchase of shares of common stock of the Issuer and any payment therefor by way of dissenting rights or otherwise) and the payment of fees and expenses with respect thereto; 43 (f) the payment of dividends or the making of loans or advances by the Issuer to Holdings not to exceed $3.0 million in any fiscal year for costs and expenses incurred by Holdings in its capacity as a holding company or for services rendered by Holdings on behalf of the Issuer; (g) payments or distributions to Holdings pursuant to any Tax Sharing Agreement; (h) the payment of dividends by a Restricted Subsidiary on any class of common stock of such Restricted Subsidiary if (i) such dividend is paid pro rata to all holders of such class of common stock and (ii) at least 51% of such class of common stock is held by the Issuer or one or more of its Restricted Subsidiaries; (i) the repurchase of any class of common stock of a Restricted Subsidiary if (i) such repurchase is made pro rata with respect to such class of common stock and (ii) at least 51% of such class of common stock is held by the Issuer or one or more of its Restricted Subsidiaries; (j) any other Restricted Investment made in a Permitted Business which, together with all other Restricted Investments made pursuant to this clause (j) since the date of this Indenture, does not exceed $25.0 million (in each case, after giving effect to all subsequent reductions in the amount of any Restricted Investment made pursuant to this clause (j), either as a result of (i) the repayment or disposition thereof for cash or (ii) the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued proportionate to the Issuer's equity interest in such Subsidiary at the time of such redesignation) at the fair market value of the net assets of such Subsidiary at the time of such redesignation), in the case of clause (i) and (ii), not to exceed the amount of such Restricted Investment previously made pursuant to this clause (j); PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after making such Restricted Investment; (k) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Issuer or any Restricted Subsidiary issued on or after the date of this Indenture in accordance with Section 4.09 hereof; PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after making such Restricted Payment; (l) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options; (m) the payment of dividends or distributions on the Issuer's common stock, following the first public offering of the Issuer's common stock or Holdings' common stock after the date of this Indenture, of up to 6.0% per annum of (i) the net proceeds received by the Issuer from such public offering of its common stock or (ii) the net proceeds received by the Issuer from such public offering of Holdings' common stock as common equity or preferred equity (other than Disqualified Stock), other than, in each case, with respect to public offerings with respect to the Issuer's common stock or Holdings' common stock registered on Form S-8; PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after any such payment of dividends or distributions; (n) any other Restricted Payment which, together with all other Restricted Payments made pursuant to this clause (n) since the date of this Indenture, does not exceed $10.0 million (in each case, after giving effect to all subsequent reductions in the amount of any Restricted Investment made pursuant to this clause (n) either as a result of (i) the repayment or disposition thereof for cash or (ii) the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued proportionate to the Issuer's equity interest in 44 such Subsidiary at the time of such redesignation) at the fair market value of the net assets of such Subsidiary at the time of such redesignation), in the case of clause (i) and (ii), not to exceed the amount of such Restricted Investment previously made pursuant to this clause (n); PROVIDED that no Default or Event of Default shall have occurred and be continuing immediately after making such Restricted Payment; (o) the pledge by the Issuer of the Capital Stock of an Unrestricted Subsidiary of the Issuer to secure Non-Recourse Debt of such Unrestricted Subsidiary; (p) the purchase, redemption or other acquisition or retirement for value of any Equity Interests of any Restricted Subsidiary issued after the date of this Indenture, PROVIDED that the aggregate price paid for any such repurchased, redeemed, acquired or retired Equity Interests shall not exceed the sum of (i) the amount of cash and Cash Equivalents received by such Restricted Subsidiary from the issue or sale thereof and (ii) any accrued dividends thereon the payment of which would be permitted pursuant to clause (k) above; (q) any Investment in an Unrestricted Subsidiary that is funded by Qualified Proceeds received by the Issuer on or after the date of the Indenture from contributions to the Issuer's capital or from the issue and sale on or after the date of this Indenture of Equity Interests of the Issuer or of Disqualified Stock or convertible debt securities to the extent they have been converted into such Equity Interests (other than Equity Interests, Disqualified Stock or convertible debt securities sold to a Subsidiary of the Issuer and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock) in an amount (measured at the time such Investment is made and without giving effect to subsequent changes in value) that does not exceed the amount of such Qualified Proceeds; and (r) distributions or payments of Receivables Fees. The board of directors of the Issuer may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such designation, all outstanding Investments by the Issuer and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this Section 4.07. All such outstanding Investments will be deemed to constitute Restricted Investments in an amount equal to the greater of (i) the net book value of such Investments at the time of such designation and (ii) the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Investment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The amount of (i) all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Issuer or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment and (ii) Qualified Proceeds (other than cash) shall be the fair market value on the date of receipt thereof by the Issuer of such Qualified Proceeds. The fair market value of any non-cash Restricted Payment shall be determined by the board of directors of the Issuer whose resolution with respect thereto shall be delivered to the Trustee. Not later than the date of making any Restricted Payment, the Issuer shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed. 45 SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other distributions to the Issuer or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries, (b) make loans or advances to the Issuer or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries. However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the date of this Indenture, (b) the New Credit Facility as in effect as of the date of this Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, (c) this Indenture and the Notes, (d) applicable law and any applicable rule, regulation or order, (e) any agreement or instrument of a Person acquired by the Issuer or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent created in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, PROVIDED that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (f) customary non-assignment provisions in leases and contracts entered into in the ordinary course of business and consistent with past practices, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (e) above on the property so acquired, (h) contracts for the sale of assets, including, without limitation, customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (i) Permitted Refinancing Indebtedness, PROVIDED that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are, in the good faith judgment of the Issuer's board of directors, not materially less favorable, taken as a whole, to the Holders of the Notes than those contained in the agreements governing the Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.09 and 4.12 hereof that limit the right of the debtor to dispose of the assets securing such Indebtedness, (k) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, (l) other Indebtedness or Disqualified Stock of Restricted Subsidiaries permitted to be incurred subsequent to the Issuance Date pursuant to the provisions of Section 4.09 hereof, (m) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business, and (n) restrictions created in connection with any Receivables Facility that, in the good faith determination of the board of directors of the Issuer, are necessary or advisable to effect such Receivables Facility. SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. (a) the Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "INCUR") any Indebtedness (including Acquired Indebtedness), (b) the Issuer will not, and will not permit any of its Restricted Subsidiaries to, issue any shares of Disqualified Stock and (c) the Issuer will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED that the Issuer or any Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio 46 for the Issuer's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.0 to 1, determined on a consolidated pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this Section 4.09 will not apply to the incurrence of any of the following items of Indebtedness (collectively, "PERMITTED INDEBTEDNESS"): (i) the incurrence by the Issuer and its Restricted Subsidiaries of Indebtedness under the New Credit Facility; PROVIDED that the aggregate principal amount of all Indebtedness (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Issuer and such Restricted Subsidiaries thereunder) then classified as having been incurred in reliance upon this clause (i) that remains outstanding under the New Credit Facility after giving effect to such incurrence does not exceed an amount equal to $150.0 million; (ii) the incurrence by the Issuer and its Restricted Subsidiaries of Existing Indebtedness; (iii) the incurrence by the Issuer of Indebtedness represented by the Notes and this Indenture and by the Guarantors of Indebtedness represented by the Note Guarantees; (iv) the incurrence by the Issuer and its Restricted Subsidiaries of Indebtedness denominated in Swiss francs (or a European common currency as a result of the implementation of European Monetary Union and the cessation of use of Swiss francs as the lawful currency of Switzerland) in an aggregate principal amount (or accreted value, as applicable) not to exceed $4.0 million outstanding after giving effect to such incurrence; (v) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness represented by Capital Expenditure Indebtedness, Capital Lease Obligations or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Issuer or such Restricted Subsidiary, in an aggregate principal amount (or accreted value, as applicable) not to exceed $15.0 million outstanding after giving effect to such incurrence; (vi) Indebtedness arising from agreements of the Issuer or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; PROVIDED that (A) such Indebtedness is not reflected on the balance sheet of the Issuer or any Restricted Subsidiary (contingent obligations referred to in a footnote or footnotes to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (A)) and (B) the maximum assumable liability in respect of such Indebtedness shall at no time exceed the gross proceeds including non-cash proceeds (the fair market value of such non-cash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Issuer and/or such Restricted Subsidiary in connection with such disposition; 47 (vii) the incurrence by the Issuer or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred; (viii) the incurrence by the Issuer or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Issuer and/or any of its Restricted Subsidiaries; PROVIDED that (i) if the Issuer is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Issuer or a Restricted Subsidiary thereof and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Issuer or a Restricted Subsidiary thereof shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Issuer or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (viii); (ix) the incurrence by the Issuer or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging (A) interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding and (B) exchange rate risk with respect to agreements or Indebtedness of such Person payable denominated in a currency other than U.S. dollars, PROVIDED that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder; (x) the guarantee by the Issuer or any of its Restricted Subsidiaries of Indebtedness of the Issuer or a Restricted Subsidiary of the Issuer that was permitted to be incurred by another provision of this Section 4.09; (xi) the incurrence by the Issuer or any of its Restricted Subsidiaries of Acquired Indebtedness in an aggregate principal amount (or accreted value, as applicable) not to exceed $10.0 million outstanding after giving effect to such incurrence; (xii) obligations in respect of performance and surety bonds and completion guarantees provided by the Issuer or any Restricted Subsidiary in the ordinary course of business; and (xiii) the incurrence by the Issuer or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) outstanding after giving effect to such incurrence, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (xiii), not to exceed $20.0 million. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (i) through (xiii) above or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Issuer shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this Section 4.09 and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph of this Section 4.09. In addition, the Issuer may, at any time, change the classification of an item of Indebtedness (or any portion thereof) to any other clause or to the first paragraph hereof PROVIDED that the Issuer would be permitted to incur such item of Indebtedness (or such portion thereof) pursuant to such other clause or the first paragraph of this Section 4.09, as the case 48 may be, at such time of reclassification. Accrual of interest, accretion or amortization of original issue discount will not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.09. All Indebtedness under the New Credit Facility outstanding on the date of this Indenture shall be deemed to have been incurred on such date in reliance on the first paragraph of this Section 4.09. SECTION 4.10. ASSET SALES The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (a) the Issuer or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the board of directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (b) at least 75% of the consideration therefor received by the Issuer or such Restricted Subsidiary is in the form of (i) cash or Cash Equivalents or (ii) property or assets that are used or useful in a Permitted Business, or the Capital Stock of any Person engaged in a Permitted Business if, as a result of the acquisition by the Issuer or any Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary; PROVIDED that the amount of (x) any liabilities (as shown on the Issuer's or such Restricted Subsidiary's most recent balance sheet), of the Issuer or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Issuer or such Restricted Subsidiary from further liability, (y) any securities, notes or other obligations received by the Issuer or any such Restricted Subsidiary from such transferee that are contemporaneously (subject to ordinary settlement periods) converted by the Issuer or such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received), and (z) any Designated Noncash Consideration received by the Issuer or any of its Restricted Subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (z) that is at that time outstanding, not to exceed 15% of Total Assets at the time of the receipt of such Designated Noncash Consideration (with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value), shall be deemed to be cash for purposes of this Section 4.10; and PROVIDED further that the 75% limitation referred to in clause (b) above will not apply to any Asset Sale in which the cash or Cash Equivalents portion of the consideration received therefrom, determined in accordance with the foregoing proviso, is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 75% limitation. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Issuer or any such Restricted Subsidiary shall apply such Net Proceeds, at its option (or to the extent the Issuer is required to apply such Net Proceeds pursuant to the terms of the New Credit Facility), to (a) repay or purchase Senior Indebtedness or Pari Passu Indebtedness of the Issuer or any Indebtedness of any Restricted Subsidiary, PROVIDED that, if the Issuer shall so repay or purchase Pari Passu Indebtedness of the Issuer, it will equally and ratably reduce Indebtedness under the Notes if the Notes are then redeemable, or, if the Notes may not then be redeemed, the Issuer shall make an offer (in accordance with the procedures set forth below for an Asset Sale Offer) to all Holders of Notes to purchase at a purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase, the Notes that would otherwise be redeemed or (b) an investment in property, the making of a capital expenditure or the acquisition of assets that are used or useful in a Permitted Business, or Capital Stock of any Person primarily engaged in a Permitted Business if (i) as a result of the acquisition by the Issuer or any Restricted Subsidiary thereof, such Person becomes a Restricted 49 Subsidiary or (ii) the Investment in such Capital Stock is permitted by clause (f) of the definition of Permitted Investments. Pending the final application of any such Net Proceeds, the Issuer may temporarily reduce Indebtedness or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuer shall be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Issuer may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof in connection with an Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased as set forth in Section 3.02 hereof. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. The Issuer shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture relating to such Asset Sale Offer, the Issuer will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof. SECTION 4.11. TRANSACTIONS WITH AFFILIATES. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Issuer or such Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person and (b) the Issuer delivers to the Trustee, with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $7.5 million, either (i) a resolution of the board of directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the board of directors or (ii) an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. Notwithstanding the foregoing, the following items shall not be deemed to be Affiliate Transactions: (a) customary directors' fees, indemnification or similar arrangements or any employment agreement or other compensation plan or arrangement entered into by the Issuer or any of its Restricted Subsidiaries in the ordinary course of business (including ordinary course loans to employees not to exceed (i) $5.0 million outstanding in the aggregate at any time and (ii) $2.0 million to any one employee) and consistent with the past practice of the Issuer or such Restricted Subsidiary; (b) transactions between or among the Issuer and/or its Restricted Subsidiaries; (c) payments of customary fees by the Issuer or any of its Restricted Subsidiaries to DLJMB and its Affiliates made for any financial advisory, financing, 50 underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which are approved by a majority of the board of directors in good faith; (d) any agreement as in effect on the date of this Indenture or any amendment thereto (so long as such amendment is not disadvantageous to the Holders of the Notes in any material respect) or any transaction contemplated thereby; (e) payments and transactions in connection with the Acquisition, the New Credit Facility and the Bridge Notes (including commitment, syndication and arrangement fees payable thereunder) and the Offering (including discounts and commissions in connection therewith) and the application of the proceeds thereof, and the payment of the fees and expenses with respect thereto; (f) Restricted Payments that are permitted by Section 4.07 hereof and any Permitted Investments; (g) payments and transactions in connection with the GTP Investment, and the payment of fees and expenses with respect thereto; and (h) sales of accounts receivable, or participations therein, in connection with any Receivables Facility. SECTION 4.12. LIENS. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien, other than a Permitted Lien, that secures obligations under any Pari Passu Indebtedness or subordinated Indebtedness of the Issuer on any asset or property now owned or hereafter acquired by the Issuer or any of its Restricted Subsidiaries, or any income or profits therefrom or assign or convey any right to receive income therefrom, unless the Notes are equally and ratably secured with the obligations so secured until such time as such obligations are no longer secured by a Lien; PROVIDED that, in any case involving a Lien securing subordinated Indebtedness of the Issuer, such Lien is subordinated to the Lien securing the Notes to the same extent that such subordinated Indebtedness is subordinated to the Notes. SECTION 4.13. CORPORATE EXISTENCE. Subject to Article 5 hereof, the Issuer shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) the corporate, partnership or other existence of itself and each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Issuer or any such Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Issuer and its Subsidiaries; PROVIDED, HOWEVER, that the Issuer shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of itself and any of its Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Issuer and its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Issuer to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of repurchase (the "CHANGE OF CONTROL PAYMENT"). Within 60 days following any Change of Control, the Issuer will (or will cause the Trustee to) mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "CHANGE OF CONTROL PAYMENT DATE"), pursuant to 51 the procedures required by this Indenture and described in such notice. The Issuer shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture relating to such Change of Control Offer, the Issuer shall comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations described in this Indenture by virtue thereof. On the Change of Control Payment Date, the Issuer shall, to the extent lawful, (a) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (b) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (c) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Issuer. The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; PROVIDED that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section 4.14, but in any event within 90 days following a Change of Control, the Issuer shall either repay all outstanding Senior Indebtedness or obtain the requisite consents, if any, under all agreements governing outstanding Senior Indebtedness to permit the repurchase of Notes required by this Section 4.14. The Issuer shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (b) Notwithstanding anything to the contrary in this Section 4.14, the Issuer will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. SECTION 4.15. NO SENIOR SUBORDINATED INDEBTEDNESS. The Issuer shall not Incur any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Notes and no Guarantor shall Incur any Indebtedness that is subordinate or junior in right of payment to any Senior Indebtedness and senior in right of payment to the Note Guarantees. SECTION 4.16. SALE AND LEASEBACK TRANSACTIONS. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; PROVIDED that the Issuer or any Restricted Subsidiary may enter into a sale and leaseback transaction if (a) the Issuer or such Restricted Subsidiary, as the case may be, could have (i) incurred Indebtedness in an amount equal to the Attributable Indebtedness relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 herein and (ii) incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof, (b) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the board of directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and leaseback transaction and (c) the transfer of 52 assets in such sale and leaseback transaction is permitted by, and the Issuer applies the proceeds of such transaction in compliance with, Section 4.10 hereof. SECTION 4.17. ACCOUNTS RECEIVABLE FACILITY No Accounts Receivable Subsidiary will incur any Indebtedness if immediately after giving effect to such incurrence the aggregate outstanding Indebtedness of all Accounts Receivable Subsidiaries (excluding any Indebtedness owed to the Issuer or any Restricted Subsidiary) would exceed $60.0 million. SECTION 4.18. ADDITIONAL NOTE GUARANTEES If any Wholly-Owned Restricted Subsidiary of the Issuer that is a Domestic Subsidiary guarantees any Indebtedness under the New Credit Facility, then such Restricted Subsidiary shall become a Guarantor by executing a Supplemental Indenture in the form attached hereto as Exhibit E and deliver an Opinion of Counsel to the Trustee to the effect that such Supplemental Indenture has been duly authorized, executed and delivered by such Subsidiary and constitutes a valid and binding obligation of such Subsidiary, enforceable against such Subsidiary in accordance with its terms (subject to customary exceptions). ARTICLE 5. SUCCESSORS SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Issuer may not consolidate or merge with or into (whether or not the Issuer is the surviving corporation), or sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (a) the Issuer is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia, (b) the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Issuer under the Registration Rights Agreement, the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, (c) immediately after such transaction no Default or Event of Default exists and (d) the Issuer or the Person formed by or surviving any such consolidation or merger (if other than the Issuer), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made (i) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof or (ii) would (together with its Restricted Subsidiaries) have a higher Fixed Charge Coverage Ratio immediately after such transaction (after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period) than the Fixed Charge Coverage Ratio of the Issuer and its Restricted Subsidiaries immediately prior to such transaction. The foregoing clause (d) will not prohibit (a) a merger between the Issuer and a Wholly Owned Subsidiary of Holdings created for the purpose of holding the Capital Stock of the Issuer, (b) a merger between the Issuer and a Wholly Owned Restricted Subsidiary or (c) a merger between the Issuer and an Affiliate incorporated solely for the purpose of reincorporating the 53 Issuer in another State of the United States so long as, in each case, the amount of Indebtedness of the Issuer and its Restricted Subsidiaries is not increased thereby. The Issuer shall not lease all or substantially all of its assets to any Person. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Issuer is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Issuer" shall refer instead to the successor corporation and not to the Issuer), and may exercise every right and power of the Issuer under this Indenture with the same effect as if such successor Person had been named as the Issuer herein; PROVIDED, HOWEVER, that the predecessor Issuer shall not be relieved from the obligation to pay the principal of and interest or Liquidated Damages, if any, on the Notes except in the case of a sale of all of the Issuer's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. Each of the following constitutes an Event of Default: (a) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes (whether or not prohibited by Article 10 hereof); (b) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by Article 10 hereof); (c) failure by the Issuer or any of its Restricted Subsidiaries for 30 days after receipt of notice from the Trustee or Holders of at least 25% in principal amount of the Notes then outstanding to comply with Sections 4.07, 4.09, 4.10, 4.14 or Article 5 hereof; (d) failure by the Issuer for 60 days after notice from the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with any of its other agreements in this Indenture or the Notes; (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Issuer or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default (i) is caused by a failure to pay Indebtedness at its stated final maturity (after giving effect to any applicable grace period provided in such Indebtedness) (a "PAYMENT DEFAULT") or (ii) results in the acceleration of such Indebtedness prior to its stated final maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which 54 there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more; (f) failure by the Issuer or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million (net of any amounts with respect to which a reputable and creditworthy insurance company has acknowledged liability in writing), which judgments are not paid, discharged or stayed for a period of 60 days; (g) except as permitted by this Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and (h) the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a Custodian of the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. SECTION 6.02. ACCELERATION. 55 If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.01 hereof with respect to the Company, any Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; PROVIDED that, so long as any Indebtedness permitted to be incurred pursuant to the New Credit Facility shall be outstanding, such acceleration shall not be effective until the earlier of (a) an acceleration of any such Indebtedness under the New Credit Facility or (b) five business days after receipt by the Issuer and the administrative agent under the New Credit Facility of written notice of such acceleration. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs with respect to the Issuer, any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall become due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium or Liquidated Damages, if any, that has become due solely because of the acceleration) have been cured or waived, PROVIDED that, in the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (e) of Section 6.01 hereof, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in clause (e) have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days of the date of such declaration and if (i) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction and (ii) all existing Events of Default, except non-payment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (PROVIDED, HOWEVER, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any 56 such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06. LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Issuer for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest and Liquidated Damages, if any, on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of 57 collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Issuer (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; SECOND: to holders of Senior Indebtedness to the extent required by Article 10 or Section 11.02 hereof; THIRD: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and FOURTH: to the Issuer or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. 58 SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. 59 (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (e) and (f) of this Section 7.01 and Section 7.02 hereof. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuer. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Issuer shall be sufficient if signed by an Officer of the Issuer. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) Except with respect to Section 4.01 hereof, the Trustee shall have no duty to inquire as to the performance of the Issuer's covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 6.01(a), 6.01(b) and 4.01 or (ii) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge. (h) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, 60 order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee may, in its discretion, make such further inquiry or investigation into such facts or matters as it may see fit and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuer personally or by agent or attorney. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuer or any Affiliate of the Issuer with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuer's use of the proceeds from the Notes or any money paid to the Issuer or upon the Issuer's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest or Liquidated Damages, if any, on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each March 15 beginning with the March 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section (b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Issuer and filed with the Commission and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Issuer shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 7.07. COMPENSATION AND INDEMNITY. 61 The Issuer shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Issuer shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Issuer (including this Section 7.07) and defending itself against any claim (whether asserted by the Issuer or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Issuer promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuer shall not relieve the Issuer of its obligations hereunder. The Issuer shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Issuer shall pay the reasonable fees and expenses of such counsel. The Issuer need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Issuer under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Issuer's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Issuer. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuer in writing. The Issuer may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; 62 (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuer shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuer. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuer, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10 hereof, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, PROVIDED all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuer's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. 63 The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Issuer may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Issuer's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Issuer and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes and Notes Guarantees on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that the Issuer shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Issuer, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages, if any, on such Notes when such payments are due from the trust referred to below, (b) the Issuer's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (c) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer's obligations in connection therewith and (d) the Legal Defeasance provisions of this Indenture. SECTION 8.03. COVENANT DEFEASANCE. Upon the Issuer's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Issuer and each Guarantor shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.14, 4.15, 4.16, 4.17 and 4.18 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent 64 or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Issuer may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Issuer's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default. SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance, (a) the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages, if any, on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Issuer must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of Legal Defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (i) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, subject to customary assumptions and exclusions, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of Covenant Defeasance, the Issuer shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or, insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 123rd day after the date of deposit; 65 (e) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Issuer or any of its Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is bound; (f) the Issuer must have delivered to the Trustee an Opinion of Counsel to the effect that, subject to customary assumptions and exclusions, after the 123rd day following the deposit, the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or any analogous New York State law provision or any other applicable federal or New York bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Issuer must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Issuer with the intent of preferring the Holders of Notes over the other creditors of the Issuer with the intent of defeating, hindering, delaying or defrauding creditors of the Issuer or others; and (h) the Issuer must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel (which opinion may be subject to customary assumptions and exclusions), each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "TRUSTEE") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest and Liquidated Damages, if any, but such money need not be segregated from other funds except to the extent required by law. The Issuer shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuer from time to time upon the request of the Issuer any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06. REPAYMENT TO ISSUER. 66 Any money deposited with the Trustee or any Paying Agent, or then held by the Issuer, in trust for the payment of the principal of, premium, if any, or interest or Liquidated Damages, if any, on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest or Liquidated Damages, if any, has become due and payable shall be paid to the Issuer on its request or (if then held by the Issuer) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Issuer for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuer as trustees thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. SECTION 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuer's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; PROVIDED, HOWEVER, that, if the Issuer makes any payment of principal of, premium, if any, or interest or Liquidated Damages, if any, on any Note following the reinstatement of its obligations, the Issuer shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Issuer, the Guarantors and the Trustee may amend or supplement this Indenture, the Note Guarantees or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Issuer's or Guarantor's obligations to the Holders of the Notes by a successor to the Issuer or a Guarantor pursuant to Article 5 or Article 11 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not materially adversely affect the legal rights hereunder of any Holder of the Note; (e) to comply with requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; 67 (f) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or (g) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes. Upon the request of the Issuer accompanied by a resolution of their Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Issuer in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.02, the Issuer and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof), the Note Guarantees and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes (including Additional Notes, if any) then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest or Liquidated Damages, if any, on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Note Guarantees or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including Additional Notes, if any) voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Notwithstanding the foregoing, any (i) amendment to or waiver of Sections 4.10 and 4.14 hereof, and (ii) amendment to Article 10 herein will require the consent of the Holders of at least two-thirds in aggregate principal amount of the Notes then outstanding if such amendment would materially adversely affect the rights of Holders of Notes. Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Issuer accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Issuer in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. 68 After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Issuer shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes (including Additional Notes, if any) then outstanding voting as a single class may waive compliance in a particular instance by the Issuer with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than Sections 4.10 and 4.14 hereof), (c) reduce the rate of or extent the time for payment of interest on any Note, (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (e) make any Note payable in money other than that stated in the Notes, (f) make any change in the provisions of this Indenture relating to waivers of past Defaults, (g) waive a redemption payment with respect to any Note (other than Sections 4.10 and 4.14 hereof, (h) release any Guarantor from its obligations under its Note Guarantee or this Indenture, except in accordance with the terms of this Indenture, or (i) make any change in the foregoing amendment and waiver provisions. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, 69 supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Issuer in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Issuer may not sign an amendment or supplemental Indenture until its Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10. SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Issuer agrees, and each Holder by accepting a Note agrees, that the payment of Subordinated Note Obligations are subordinated in right of payment, to the extent and in the manner set forth in this Article 10, to the prior payment in full in cash or cash equivalents of all Senior Indebtedness, whether outstanding on the date of this Indenture or thereafter incurred and that the subordination is for the benefit of the holders of Senior Indebtedness. The provisions of this Article 10 shall constitute a continuing offer to all Persons that, in reliance upon such provisions, become holders of, or continue to hold Senior Indebtedness, and they or each of them may enforce the rights of holders of Senior Indebtedness hereunder, subject to the terms and provisions hereof. SECTION 10.02. CERTAIN DEFINITIONS. "CASH EQUIVALENTS" means Cash Equivalents of the type described in clause (i) of the definition thereof maturing not more than 90 days after the date of the acquisition thereof. "DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding under the New Credit Facility and (b) any other Senior Indebtedness permitted under this Indenture the principal amount of which is $25.0 million or more and that has been designated by the Issuer in writing to the Trustee as "Designated Senior Indebtedness." 70 "PERMITTED JUNIOR SECURITIES" means Equity Interests in the Issuer or debt securities of the Issuer that are subordinated to all Senior Indebtedness (and any debt securities issued in exchange for Senior Indebtedness) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Indebtedness. "REPRESENTATIVE" means the indenture trustee or other trustee, agent or representative for any Senior Indebtedness. "SENIOR INDEBTEDNESS" means, with respect to any Person, (a) all Obligations of such Person outstanding under the New Credit Facility and all Hedging Obligations payable to a lender or an Affiliate thereof or to a Person that was a lender or an Affiliate thereof at the time the contract was entered into under the New Credit Facility or any of its Affiliates, including, without limitation, interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, whether or not such interest is an allowable claim in such bankruptcy proceeding, (b) any other Indebtedness, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to any other Senior Indebtedness of such Person and (c) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (i) any liability for federal, state, local or other taxes, (ii) any Indebtedness of such Person (other than pursuant to the New Credit Facility) to any of its Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any Indebtedness that is incurred in violation of this Indenture. "SUBORDINATED NOTE OBLIGATIONS" means all Obligations with respect to the Notes, including, without limitation, principal, premium (if any), interest and Liquidated Damages payable pursuant to the terms of the Notes (including upon the acceleration or redemption thereof), together with and including any amounts received or receivable upon the exercise of rights of rescission or other rights of action (including claims for damages) or otherwise. A "distribution" or "payment" may consist of a distribution, payment or other transfer of assets by or on behalf of the Issuer (including, without limitation, a redemption, repurchase or other acquisition of the Notes) from any source, of any kind or character, whether in cash, securities or other property, by set-off or otherwise. SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to creditors of the Issuer in a liquidation or dissolution of the Issuer or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or its property, an assignment for the benefit of creditors or any marshalling of the Issuer's assets and liabilities, (a) the holders of Senior Indebtedness will be entitled to receive payment in full in cash or cash equivalents of all Obligations due in respect of such Senior Indebtedness (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Indebtedness) before the Holders of Notes will be entitled to receive any payment with respect to the Subordinated Note Obligations, and (b) until all Obligations with respect to Senior Indebtedness are paid in full in cash or cash equivalents, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Indebtedness (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from the trust described Section 8.04 hereof) as their interests appear. SECTION 10.04. DEFAULT ON DESIGNATED SENIOR INDEBTEDNESS. 71 The Issuer may not make any payment or distribution to the Trustee or any Holder upon or in respect of the Subordinated Note Obligations (except in Permitted Junior Securities or from the trust described in Section 8.04 hereof) until all principal and other obligations with respect to Senior Indebtedness have been paid in full in cash or cash equivalents, if (a) a default in the payment of the principal (including reimbursement obligations in respect of letters of credit) of, premium, if any, or interest on or commitment fees relating to, Designated Senior Indebtedness occurs and is continuing beyond any applicable period of grace, or (b) any other default occurs and is continuing with respect to Designated Senior Indebtedness that permits holders of the Designated Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "PAYMENT BLOCKAGE NOTICE") from the Issuer or the holders of any Designated Senior Indebtedness. Payments on the Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Indebtedness has been accelerated. No new period of payment blockage may be commenced unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived or cured for a period of not less than 90 days. SECTION 10.05. ACCELERATION OF SECURITIES. If payment of the Notes is accelerated because of an Event of Default, the Issuer shall promptly notify holders of Senior Indebtedness of the acceleration. SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER. In the event that the Trustee or any Holder receives any payment of any Subordinated Note Obligations at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.03 or 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Indebtedness as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Indebtedness remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Issuer or any other Person money or assets to which any 72 holders of Senior Indebtedness shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. SECTION 10.07. NOTICE BY ISSUER. The Issuer shall promptly notify the Trustee and the Paying Agent of any facts known to the Issuer that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Indebtedness as provided in this Article 10. SECTION 10.08. SUBROGATION. After all Senior Indebtedness is paid in full in cash or cash equivalents and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness PARI PASSU with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Indebtedness. A distribution made under this Article 10 to holders of Senior Indebtedness that otherwise would have been made to Holders of Notes is not, as between the Issuer and Holders, a payment by the Issuer on the Notes. SECTION 10.09. RELATIVE RIGHTS. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between the Issuer and Holders of Notes, the obligation of the Issuer, which is absolute and unconditional, to pay principal of and interest and Liquidated Damages, if any, on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Issuer other than its rights in relation to holders of Senior Indebtedness; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Indebtedness to receive distributions and payments otherwise payable to Holders of Notes. If the Issuer fails because of this Article 10 to pay principal of or interest or Liquidated Damages, if any, on a Note on the due date, the failure is still a Default or Event of Default. SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY ISSUER. No right of any holder of Senior Indebtedness to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Issuer or any Holder or by the failure of the Issuer or any Holder to comply with this Indenture. SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. 73 Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Issuer referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other Indebtedness of the Issuer, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Issuer or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. SECTION 10.14. NO WAIVER OF SUBORDINATION PROVISIONS. (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act by any such holder. (b) Without in any way limiting the generality of paragraph (a) of this Section 10.14, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or any Holder, without incurring responsibility to any Holder and without impairing or releasing the subordination provided in this Article 10 or the obligations hereunder of the Holders to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, any Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) 74 sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against either Issuer or any other Person. SECTION 10.15. AMENDMENTS. The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Indebtedness. ARTICLE 11. NOTE GUARANTEES SECTION 11.01. GUARANTEE. Subject to this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Issuer hereunder or thereunder, that: (a) the principal of and interest and Liquidated Damages, if any, on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest and Liquidated Damages, if any, on the Notes, if any, if lawful, and all other obligations of the Issuer to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Issuer, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest, notice and all demands whatsoever and covenant that this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Issuer, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Issuer or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders 75 and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. SECTION 11.02. SUBORDINATION OF NOTE GUARANTEE. The Guarantors agree, and each Holder by accepting a Note agrees, that the Obligations of each Guarantor under its Note Guarantee pursuant to this Article 11 shall be junior and subordinated to the Senior Indebtedness of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Indebtedness of the Issuer as provided in Article 10 hereof. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Section 4.15 hereof. SECTION 11.03. LIMITATION ON GUARANTOR LIABILITY. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor under its Note Guarantee and this Article 11 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance. SECTION 11.04. EXECUTION AND DELIVERY OF NOTE GUARANTEE. To evidence its Note Guarantee set forth in Section 11.01, each Guarantor hereby agrees that this Indenture shall be executed on behalf of such Guarantor by one of its officers. If an Officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates the Note, the Note Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Issuer creates or acquires any new Subsidiaries subsequent to the date of this Indenture, if required by Section 4.20 hereof, the Issuer shall cause such Subsidiaries to execute 76 supplemental indentures to this Indenture in accordance with Section 4.20 hereof and this Article 11, to the extent applicable. SECTION 11.05. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person whether or not affiliated with such Guarantor unless: (a) subject to Section 11.06 hereof, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Issuer) unconditionally assumes all the obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, this Indenture and the Note Guarantee on the terms set forth herein or therein; (b) immediately after giving effect to such transaction, no Default or Event of Default exists; and (c) the Issuer would, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses (a) and (b) above, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Issuer or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Issuer or another Guarantor. SECTION 11.06. RELEASES FOLLOWING SALE OF ASSETS. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; PROVIDED that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Issuer to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Issuer in 77 accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest and Liquidated Damages, if any, on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. ARTICLE 12. MISCELLANEOUS SECTION 12.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 12.02. NOTICES. Any notice or communication by the Issuer, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address. If to the Issuer and/or Guarantor: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, California 90245 Telecopier No.: Attention: With a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Telecopier No.: (212) 450-4800 Attention: Richard Truesdell, Jr, Esq. If to the Trustee: State Street Bank and Trust Company 225 Asylum Street, 23rd Floor Hartford, Connecticut 06103 Telecopier No.: 860-244-1889 Attention: Corporate Trust Administration (a) The Issuer, any Guarantor or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. 78 All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Issuer mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuer, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Issuer to the Trustee to take any action under this Indenture, the Issuer shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; 79 (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 12.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No member, director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor, as such, shall have any liability for any obligations of the Issuer or such Guarantor under the Notes, the Note Guarantees or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. SECTION 12.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Issuer or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 12.10. SUCCESSORS. All agreements of the Issuer in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 12.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 80 SECTION 12.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 81 SIGNATURES Dated as of October 5, 1998 DECRANE AIRCRAFT HOLDINGS, INC. By: ----------------------------------- Name: Title: AEROSPACE DISPLAY SYSTEMS, INC. By: ----------------------------------- Name: Title: AUDIO INTERNATIONAL, INC. By: ----------------------------------- Name: Title: AVTECH CORPORATION By: ----------------------------------- Name: Title: CORY COMPONENTS, INC. By: ----------------------------------- Name: Title: DETTMERS INDUSTRIES, INC. By: ----------------------------------- Name: Title: 82 ELSINORE AEROSPACE SERVICES, INC. By: ----------------------------------- Name: Title: ELSINORE ENGINEERING, INC. By: ----------------------------------- Name: Title: HOLLINGSEAD INTERNATIONAL, INC. By: ----------------------------------- Name: Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By: ----------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY By: ------------------------------ Name: Title: 83 EX-4.1-1 35 EXHIBIT 4.1.1 EXHIBIT 4.1.1 SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of January 22, 1999 among PATS, Inc., Patrick Aircraft Tank Systems, Inc., PATS Support, Inc., PATS Aircraft and Engineering Corporation and Flight Refueling, Inc. (each a "Guarantor"), a subsidiary of DeCrane Aircraft Holdings, Inc. (or its permitted successor), a Delaware corporation (the "Issuer"), the other Guarantors (as defined in the Indenture referred to herein) and State Street Bank and Trust Company, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of October 5, 1998 providing for the issuance of an aggregate principal amount of up to $100 million of 12% Senior Subordinated Notes due 2008 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances each Guarantor shall execute and deliver to the Trustee a supplemental indenture, pursuant to which each Guarantor shall unconditionally guarantee all of the Issuer's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee"); and WHEREAS, pursuant to Section 9.06 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows; 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. Each Guarantor hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of Issuer hereunder or thereunder, that: (i) the principal of an interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, is lawful, and all other obligations of the Issuer to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against Issuer, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest, notice and all demands whatsoever. (d) This Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Issuer, the Guarantors, or any Custodian, trustee, liquidator or other similar official acting in relation to either the Issuer or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) Each Guarantor shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) Pursuant to Section 11.03 of the Indenture, after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such Guarantor under its Note Guarantor not constituting a fraudulent transfer or conveyance. 3. EXECUTION AND DELIVERY. Each Guarantor agrees that the Note Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. 2 4. GUARANTOR MAY CONSOLIDATE ETC. ON CERTAIN TERMS. (a) No Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor unless: (i) subject to Section 5(a) hereof, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Registration Rights Agreement; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) Issuer would, at the time of such transaction and after giving pro forma effect thereto and if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charger Coverage Ratio test set forth in Section 4.09 of the Indenture by virtue of the Issuer's pro forma Cash Flow Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Cash Flow Coverage Ratio test set forth in Section 4.07 of the Indenture; PROVIDED THAT, the requirements of clause (iii) of this Section 4(a) will not apply in the case of a consolidation with or merger with or into the Issuer or another Guarantor. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental Indenture executed and delivered to the Trustee in the form of Exhibit E to the Indenture or otherwise satisfactory in form to the Trustee, of the Note Guarantee and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by each Guarantor, such successor Person shall succeed to and be substituted for each Guarantor with the same effect as if it had been named herein as a Guarantor. All the Note Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clauses (a) and (b) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Issuer or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Issuer or another Guarantor. 5. RELEASES. (a) In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; 3 PROVIDED that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Issuer to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Issuer in accordance with the applicable provisions of the Indenture, including, without limitation, Section 4.10 of the Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. (b) Any Guarantor not released from its obligations under its Note Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under the Indenture as provided in Article 11 of the Indenture. 6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of each Guarantor, as such, shall have any liability for any obligations of the Issuer or any Guarantor under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 8. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 10. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guarantor and the Issuer. 4 SIGNATURES Dated as of January 22, 1999 DECRANE AIRCRAFT HOLDINGS, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO AEROSPACE DISPLAY SYSTEMS, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO AUDIO INTERNATIONAL, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO AVTECH CORPORATION BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO CORY COMPONENTS, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO DETTMERS INDUSTRIES, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO 5 ELSINORE AEROSPACE SERVICES, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO ELSINORE ENGINEERING, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO HOLLINGSEAD INTERNATIONAL INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO TRI-STAR ELECTRONICS INTERNATIONAL, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO PATS, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO PATRICK AIRCRAFT TANK SYSTEMS, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO PATS SUPPORT, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO 6 PATS AIRCRAFT AND ENGINEERING CORPORATION BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO FLIGHT REFUELING, INC. BY: /s/ John R. Hinson ---------------------------- Name: John R. Hinson Title: CFO STATE STREET BANK AND TRUST COMPANY BY: /s/ Steven Cimalore ------------------------------- Name: Steven Cimalore Title: Vice President 7 EX-4.2 36 EXHIBIT 4.2 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- A/B EXCHANGE REGISTRATION RIGHTS AGREEMENT DECRANE AIRCRAFT HOLDINGS, INC. as Issuer AEROSPACE DISPLAY SYSTEMS, INC. AUDIO INTERNATIONAL, INC. AVTECH CORPORATION CORY COMPONENTS, INC. DETTMERS INDUSTRIES, INC. ELSINORE AEROSPACE SERVICES, INC. ELSINORE ENGINEERING, INC. HOLLINGSEAD INTERNATIONAL, INC. TRI-STAR ELECTRONICS INTERNATIONAL, INC. as Guarantors $100,000,000 12% SENIOR SUBORDINATED NOTES DUE 2008 Dated as of October 5, 1998 ___________________ DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This Registration Rights Agreement (this "AGREEMENT") is made and entered into as of October 5, 1998, by and among DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "ISSUER"), Aerospace Display Systems, Inc., Audio International, Inc., Avtech Corporation, Cory Components, Inc., Dettmers Industries, Inc., Elsinore Aerospace Services, Inc., Elsinore Engineering, Inc., Hollingsead International, Inc. and Tri-Star Electronics International, Inc. (the "GUARANTORS") and Donaldson, Lufkin & Jenrette Securities Corporation (the "INITIAL PURCHASER"), who has agreed to purchase the Issuer's 12% Senior Subordinated Notes due 2008 (the "SERIES A NOTES") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated September 29, 1998 (the "PURCHASE AGREEMENT"), by and among the Issuer, the Guarantors and the Initial Purchaser. In order to induce the Initial Purchaser to purchase the Series A Notes, the Issuer has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchaser set forth in Section 9 of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Indenture, dated October 5, 1998, between the Issuer and State Street Bank and Trust Company, as Trustee, relating to the Series A Notes and the Series B Notes (the "INDENTURE"). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: ACT: The Securities Act of 1933, as amended. AFFILIATE: As defined in Rule 144. AFFILIATED MARKET MAKER: A Broker-Dealer who is deemed to be an Affiliate of the Issuer. BROKER-DEALER: Any broker or dealer registered under the Exchange Act. CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture. CLOSING DATE: The date hereof. COMMISSION: The Securities and Exchange Commission. CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Series B Notes to be issued in the Exchange Offer, (b) the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof and (c) the delivery by the Issuer to the Registrar under the Indenture of Series B Notes in the same aggregate principal amount as the aggregate principal amount of Series A Notes validly tendered and not withdrawn by Holders thereof pursuant to the Exchange Offer. CONSUMMATION DATE: The date on which the Exchange Offer is consummated. CONSUMMATION DEADLINE: As defined in Section 3(b) hereof. EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a) hereof. EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. EXCHANGE OFFER: The exchange and issuance by the Issuer of a principal amount of Series B Notes (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Series A Notes that are validly tendered and not withdrawn in connection with such exchange and issuance. EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating to the Exchange Offer, including the related Prospectus. EXEMPT RESALES: The transactions in which the Initial Purchaser proposes to sell the Series A Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act, and pursuant to Regulation S. FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof. GUARANTORS: The Guarantors defined in the preamble hereto and any Person who becomes a guarantor after the date hereof pursuant to the terms of the Indenture. HOLDERS: As defined in Section 2 hereof. PROSPECTUS: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. RECOMMENCEMENT DATE: As defined in Section 6(d) hereof. REGISTRATION DEFAULT: As defined in Section 5 hereof. REGISTRATION STATEMENT: Any registration statement of the Issuer and the Guarantors relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. REGULATION S: Regulation S promulgated under the Act. RULE 144: Rule 144 promulgated under the Act. SERIES B NOTES: The Issuer's 12% Senior Subordinated Notes due 2008 to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii) as contemplated by Section 6(b) hereof. SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof. SUSPENSION NOTICE: As defined in Section 6(d) hereof. 2 TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb), as in effect on the date of the Indenture. TRANSFER RESTRICTED SECURITIES: Each (a) Series A Note, until the earliest to occur of (i) the date on which such Series A Note is exchanged in the Exchange Offer for a Series B Note, (ii) the date on which such Series A Note has been disposed of in accordance with a Shelf Registration Statement (and the purchasers thereof have been issued Series B Notes), and (iii) the date on which such Series A Note is distributed to the public pursuant to Rule 144 under the Act and (b) each Series B Note issued to a Broker-Dealer in the Exchange Offer until the date on which such Series B Note is disposed of by such Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including the delivery of the Prospectus contained therein). SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "HOLDER") whenever such Person is the holder of record of Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) hereof have been complied with), the Issuer and the Guarantors shall use their respective reasonable best efforts to (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 120 days after the Closing Date (such 120th day, the "FILING DEADLINE"), (ii) cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 180 days after the Closing Date (such 180th day, the "EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, and (B) subject to the proviso in Section 6(c)(xii) hereof, cause all necessary filings, if any, in connection with the registration and qualification of the Series B Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and, within the time periods contemplated by Section 3(b) hereof, Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting (i) registration of the Series B Notes to be offered in exchange for the Series A Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Issuer or any of its Affiliates) as contemplated by Section 3(c) hereof. (b) The Issuer and the Guarantors shall use their respective reasonable best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; PROVIDED that in no event shall such period be less than 20 Business Days. The Issuer and the Guarantors shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Series B Notes shall be included in the Exchange Offer Registration Statement. The Issuer and the Guarantors shall use their respective reasonable best efforts to cause the Exchange Offer to be Consummated within 30 Business Days after the Exchange 3 Offer Registration Statement has become effective, but in no event later than 40 Business Days thereafter (such 40th day, the "CONSUMMATION DEADLINE"). (c) The Issuer shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Series A Notes acquired directly from the Issuer or any Affiliate of the Issuer), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission. Because such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any Series B Notes received by such Broker-Dealer in the Exchange Offer, the Issuer and Guarantors shall permit the use of the Prospectus contained in the Exchange Offer Registration Statement by such Broker-Dealer to satisfy such prospectus delivery requirement for a period of 90 days following the Consummation Date. To the extent necessary to ensure that the prospectus contained in the Exchange Offer Registration Statement is available for sales of Series B Notes by Broker-Dealers, the Issuer and Guarantors agree to use their respective reasonable best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(a) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of 90 days from the Consummation Date or such shorter period as will terminate when no Transfer Restricted Securities are outstanding. The Issuer and Guarantors shall provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers, promptly upon request, at any time during such period. SECTION 4. SHELF REGISTRATION (a) SHELF REGISTRATION. If (i) the Exchange Offer is not permitted by applicable law (after the Issuer and the Guarantors have complied with the procedures set forth in Section 6(a)(i) hereof) or (ii) if any Holder of Transfer Restricted Securities shall notify the Issuer in writing within 20 Business Days following the Consummation Deadline that (A) based on an opinion of counsel, such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder is a Broker-Dealer and holds Series A Notes acquired directly from the Issuer of any of its Affiliates, then the Issuer and the Guarantors shall: (x) cause to be filed, on or prior to 120 days after the earlier of (i) the date on which the Issuer determines that the Exchange Offer Registration Statement cannot be filed as a result of Section 4(a)(i) hereof and (ii) the date on which the Issuer receives the notice specified in Section 4(a)(ii) hereof (such earlier date, the "FILING DEADLINE"), a shelf registration statement (the "SHELF REGISTRATION STATEMENT") pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement) relating to (1) all Transfer Restricted Securities in the case of clause (a)(i) above or (2) the Transfer Restricted Securities specified in any notice in the case of clause (a)(ii) above; and 4 (y) shall use their reasonable best efforts to cause such Shelf Registration Statement to become effective on or prior to 180 days after the Filing Deadline for the Shelf Registration Statement (such 180th day, the "EFFECTIVENESS DEADLINE"). If, after the Issuer and the Guarantors have filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) hereof, the Issuer is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law (I.E., Section 4(a)(i) hereof), then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; PROVIDED that, in such event, the Issuer and the Guarantors shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). To the extent necessary to ensure that the Shelf Registration Statement is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a) and the other securities required to be registered therein pursuant to Section 6(b)(ii) hereof, the Issuer and the Guarantors shall use their respective reasonable best efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented, amended and current as required by and subject to the provisions of Sections 6(b) and (c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, until the later of (a) the date on which the Initial Purchaser is no longer deemed to be an Affiliate of the Issuer, and (b) the earlier of the second anniversary of the Closing Date (as such date may be extended pursuant to Section 6(d) hereof) and such earlier date when no Transfer Restricted Securities covered by such Shelf Registration Statement remain outstanding.. (b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Issuer in writing, within 20 days after receipt of a request therefor, the information specified in Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such information. Each selling Holder agrees to promptly furnish additional information required to be disclosed in order to make the information previously furnished to the Issuer by such Holder not materially misleading. (c) Holders of Transfer Restricted Securities that do not give the written notice within the 20 Business Day period set forth in Section 4(a) hereof, if required to be given, will no longer have any registration rights pursuant to this Section 4 and will not be entitled to any Liquidated Damages pursuant to Section 5 hereof in respect of the Issuer's and the Guarantors' obligations with respect to the Shelf Registration Statement. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated on or prior to the Consummation Deadline or (iv) any Registration Statement required 5 by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded within ten Business Days by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective within ten Business Days of filing such post-effective amendment to such Registration Statement (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Issuer and the Guarantors hereby jointly and severally agree to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.25 per week per $1,000 in principal amount of Transfer Restricted Securities; PROVIDED that the Issuer and the Guarantors shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, or (5) if sooner, upon the first date on which no Transfer Restricted Securities remain outstanding, in the case of clauses (i) through (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. Notwithstanding the fact that any securities for which liquidated damages are due cease to be Transfer Restricted Securities, all obligations of the Issuer and the Guarantors to pay liquidated damages with respect to securities that accrued prior to the time such securities ceased to be Transfer Restricted Securities shall survive until such time as such obligations with respect to such securities shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the Exchange Offer, the Issuer and the Guarantors shall (x) comply with all applicable provisions of Section 6(c) hereof, (y) use their respective reasonable best efforts to effect such exchange and to permit the resale of Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A Notes that such Broker-Dealer acquired for its own account as a result of its market-making activities or other trading activities (other than Series A Notes acquired directly from the Issuer or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and (z) comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers, such as the Exchange Offer, that, in the opinion of counsel to the Issuer, raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Issuer and the Guarantors hereby agree to seek a no-action letter or other favorable 6 decision from the Commission allowing the Issuer and the Guarantors to Consummate an Exchange Offer for such Transfer Restricted Securities. The Issuer and the Guarantors hereby agree to use their respective reasonable best efforts in pursuing the issuance of such a decision to the Commission staff level. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker-Dealer) shall furnish, upon the request of the Issuer, prior to the Consummation of the Exchange Offer, a written representation to the Issuer and the Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that, at the time of Consummation of the Exchange Offer, (A) any Series B Notes received by such Holder will be acquired in the ordinary course of its business, (B) such Holder will have no arrangement or understanding with any person to participate in the distribution of the Series A Notes or the Series B Notes within the meaning of the Act, (C) if the Holder is not a Broker-Dealer or is a Broker-Dealer but will not receive Series B Notes for its own account in exchange for Series A Notes, neither the Holder nor any such other Person is engaged in or intends to participate in a distribution of the Series B Notes, and (D) that such Holder is not an Affiliate of the Issuer. If the Holder is a Broker-Dealer that will receive Series B Notes for its own account in exchange for Series A Notes, it will represent that the Notes to be exchanged for the Series B Notes were acquired by it as a result of market-making activities or other trading activities, and will acknowledge that it will deliver a prospectus meeting the requirements of the Act in connection with any resale of such Series B Notes. It is understood that, by acknowledging that it will deliver, and by delivering, a prospectus meeting the requirements of the Act in connection with any resale of such Series B Notes, the Holder is not admitting that it is an "underwriter" within the meaning of the Act. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Issuer and the Guarantors shall provide a supplemental letter to the Commission (A) stating that the Issuer and the Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988) and MORGAN STANLEY AND CO., INC. (available June 5, 1991), as interpreted in the Commission's letter to SHEARMAN & STERLING dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that none of the Issuer or any Guarantor has entered into any arrangement or understanding with any Person to distribute the Series B Notes to be received in the Exchange Offer and that, to the best of the Issuer's and each Guarantor's information and belief, each Holder participating in the Exchange Offer is acquiring the Series B Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Series B Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) SHELF REGISTRATION STATEMENT. In connection with the Shelf Registration Statement, the Issuer and the Guarantors shall: (i) comply with all the provisions of Section 6(c) hereof and use their respective reasonable best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Issuer pursuant to Section 4(b) hereof), and pursuant 7 thereto the Issuer and the Guarantors will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof, and (ii) issue, upon the request of any Holder or purchaser of Series A Notes covered by any Shelf Registration Statement contemplated by this Agreement, Series B Notes having an aggregate principal amount equal to the aggregate principal amount of Series A Notes sold pursuant to the Shelf Registration Statement and surrendered to the Issuer for cancellation; the Issuer and the Guarantors shall register Series B Notes on the Shelf Registration Statement for this purpose and issue the Series B Notes to the purchaser(s) of securities subject to the Shelf Registration Statement in the names as such purchaser(s) shall designate. (c) GENERAL PROVISIONS. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Issuer and the Guarantors shall, during the periods specified in Sections 3 and 4 hereof, as applicable: (i) use their respective reasonable best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Issuer and the Guarantors shall file promptly an appropriate amendment to such Registration Statement or a supplement to the Prospectus, as applicable, curing such defect, and, in the case of an amendment, use their respective reasonable best efforts to cause such amendment to be declared effective as soon as practicable. (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise each Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement (in the case of the Shelf Registration Statement) and the Initial Purchaser, who is required to deliver a prospectus in connection with sales or market making activities, promptly and, if requested by such Person, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the 8 Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, and (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Issuer and the Guarantors shall use their respective reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) hereof shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to each Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement (in the case of the Shelf Registration Statement) and each Affiliated Market Maker in connection with such sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Persons, if any, for a period of at least five Business Days, and the Issuer will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which such Persons shall reasonably object within five Business Days after the receipt thereof. Such Persons shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or fails to comply with the applicable requirements of the Act; (vi) promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to each Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement (in the case of the Shelf Registration Statement) and each Affiliated Market Maker in connection with such exchange or sale, if any, make the Issuer's and the Guarantors' representatives available for 9 discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such Persons may reasonably request; (vii) make available, at reasonable times, for inspection by each Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement (in the case of the Shelf Registration Statement) and each Affiliated Market Maker and any attorney or accountant retained by such Persons, all financial and other records, pertinent corporate documents of the Issuer and the Guarantors and cause the Issuer's and the Guarantors' officers, directors and employees to supply all information reasonably requested by any such Persons, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any Holders whose Transfer Restricted Securities have been included in a Shelf Registration Statement (in the case of the Shelf Registration Statement) or any Affiliated Market Maker, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Persons may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities and the use of the Registration Statement or Prospectus for market making activities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Issuer is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement (in the case of the Shelf Registration Statement) in connection with such exchange or sale and each Affiliated Market Maker, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement and each Affiliated Market Maker without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Issuer and the Guarantors hereby consent to the use (in accordance with law and subject to Section 6(d) hereof) of the Prospectus and any amendment or supplement thereto by each selling Person in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto and all market-making activities of such Affiliated Market Maker, as the case may be; (xi) upon the request of any Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement (in the case of the Shelf Registration Statement) or the Initial Purchaser, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by such Person in connection with any sale or resale pursuant to any applicable Registration Statement. In such connection, and also in connection with market making activities by any Affiliated Market 10 Maker, the Issuer and the Guarantors shall: (A) upon request of any such Person, furnish (or in the case of paragraphs (2) and (3), use their respective reasonable best efforts to cause to be furnished) to each Holder (in the case of the Shelf Registration Statement) and the Initial Purchaser, upon Consummation of the Exchange Offer or upon the effectiveness of the Shelf Registration Statement, as the case may be: (1) a certificate, dated such date, signed on behalf of the Issuer and each Guarantor by (x) the President or any Vice President and (y) a principal financial or accounting officer of the Issuer and such Guarantor, confirming, as of the date thereof, the matters set forth in Sections 6(y), 9(a) and 9(b) of the Purchase Agreement and such other similar matters as such Person may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Issuer and the Guarantors covering matters similar to those set forth in Sections 9(e) and (f) of the Purchase Agreement and such other matters as such Person may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Issuer and the Guarantors and representatives of the independent public accountants for the Issuer and the Guarantors and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Issuer and the Guarantors) and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration Statement, as of the date of Consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of Consummation of the Exchange Offer, or as of the date of effectiveness of the Shelf Registration 11 Statement, as the case may be, from the Issuer's and the Guarantors' independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 9(h) of the Purchase Agreement; and (B) deliver such other documents and certificates as may be reasonably requested by such Persons to evidence compliance with the matters covered in clause (A) above and with any customary conditions contained in any agreement entered into by the Issuer and the Guarantors pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; PROVIDED that none of the Issuer or any Guarantor shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xiii) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xiv) use their respective reasonable best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xv) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with The Depository Trust Company; (xvi) otherwise use their respective reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to their security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in Rule 158(c) under the Act); (xvii) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate 12 with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use their respective reasonable best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (xviii) provide promptly to each Holder and Affiliated Market Maker, upon request, each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a Transfer Restricted Security and each Affiliated Market Maker agrees that, upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice from the Issuer of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "SUSPENSION NOTICE"), such Person will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Person has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Person is advised in writing by the Issuer that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each Person receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Person's possession which have been replaced by the Issuer with more recently dated Prospectuses or (ii) deliver to the Issuer (at the Issuer's expense) all copies, other than permanent file copies, then in such Person's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Issuer's and the Guarantors' performance of or compliance with this Agreement will be borne by the Issuer, regardless of whether a Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and expenses; (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Series B Notes to be issued in the Exchange Offer and printing of Prospectuses (whether for exchanges, sales, market-making or otherwise), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Issuer and the Guarantors; (v) all application and filing fees in connection with listing the Series B Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Issuer and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance). The Issuer will, in any event, bear its and the Guarantors' internal expenses (including, without limitation, all salaries and expenses of their officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Issuer and the Guarantors. 13 (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Issuer and the Guarantors will reimburse the Initial Purchaser and the Holders of Transfer Restricted Securities who are tendering Series A Notes in the Exchange Offer and/or selling or reselling Series A Notes or Series B Notes pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Issuer and the Guarantors agree, jointly and severally, to indemnify and hold harmless each Holder, its directors, officers and each Person, if any, who controls such Holder (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, liabilities, judgments, (including, without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Issuer to any Holder or any prospective purchaser of Series B Notes or registered Series A Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Issuer by any of the Holders. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless each of the Issuer and the Guarantors, their respective directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Issuer and the Guarantors, to the same extent as the foregoing indemnity from the Issuer and the Guarantors set forth in Section 8(a) hereof, but only with reference to information relating to such Holder furnished in writing to the Issuer by such Holder expressly for use in any Registration Statement. In no event shall any Holder, its directors, officers or any Person who controls such Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Holder, its directors, officers or any Person who controls such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing, and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that, in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Holder). Any 14 indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party, unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Issuer and the Guarantors, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty Business Days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of the indemnified party. (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Issuer and the Guarantors, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) hereof but also the relative fault of the Issuer and the Guarantors, on the one hand, and of the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Issuer and the Guarantors, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer and the Guarantors, on the one hand, or by the Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to above shall be deemed to include, 15 subject to the limitations set forth in the second paragraph of Section 8(a), any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. The Issuer, the Guarantors and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by PRO RATA allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8, no Holder, its directors, its officers or any Person, if any, who controls such Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Holder for such Transfer Restricted Securities and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each Holder hereunder and not joint. (e) The Issuer and the Guarantors agree that the indemnity and contribution provisions of this Section 8 shall apply to Affiliated Market Makers to the same extent and on the same conditions, as it applies to Holders. SECTION 9. RULE 144A AND RULE 144 The Issuer and each Guarantor agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Issuer or such Guarantor (i) are not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) are subject to Section 13 or 15(d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. SECTION 10. MISCELLANEOUS (a) REMEDIES. The Issuer and the Guarantors acknowledge and agree that any failure by the Issuer and/or the Guarantors to comply with their respective obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchaser or the Holders or Affiliated Market Makers for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchaser or any Holder or Affiliated Market Makers may obtain such relief as may be required to specifically enforce the Issuer's and the Guarantors' obligations under Sections 3 and 4 hereof. The Issuer and the Guarantors further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 16 (b) NO INCONSISTENT AGREEMENTS. None of the Issuer or any Guarantor will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. None of the Issuer or any Guarantor has previously entered into any currently effective agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuer's and the Guarantors' securities under any agreement in effect on the date hereof. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 10(c)(i), the Issuer has obtained the written consent of Holders of all outstanding Transfer Restricted Securities, and (ii) in the case of all other provisions hereof, the Issuer has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Issuer or its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose Transfer Restricted Securities are being tendered pursuant to the Exchange Offer, and that does not affect directly or indirectly the rights of other Holders whose Transfer Restricted Securities are not being tendered pursuant to such Exchange Offer, may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) THIRD PARTY BENEFICIARY. The Holders and Affiliated Market Makers shall be third party beneficiaries to the agreements made hereunder between the Issuer, on the one hand, and the Initial Purchaser, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (e) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Issuer or the Guarantors: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue Suite 180 El Segundo, California 90245 Telecopier No.: Attention: With a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Telecopier No.: 212-450-4000 17 Attention: Richard D. Truesdell, Jr, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. Upon the date of filing of the Exchange Offer or a Shelf Registration Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin & Jenrette Securities Corporation (in the form attached hereto as Exhibit A) and shall be addressed to: Attention: Louise Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10172. (f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation, and without the need for an express assignment, subsequent Holders; PROVIDED that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration 18 rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. DECRANE AIRCRAFT HOLDINGS, INC. By: /s/ ---------------------------- Name: Title: AEROSPACE DISPLAY SYSTEMS, INC. By: /s/ ------------------------------------- Name: Title: AUDIO INTERNATIONAL, INC. By: /s/ ------------------------------------- Name: Title: AVTECH CORPORATION By: /s/ ------------------------------------- Name: Title: CORY COMPONENTS, INC. By: /s/ ------------------------------------- Name: Title: 20 DETTMERS INDUSTRIES, INC. By: /s/ ------------------------------------- Name: Title: ELSINORE AEROSPACE SERVICES, INC. By: /s/ ------------------------------------- Name: Title: ELSINORE ENGINEERING, INC. By: /s/ ------------------------------------- Name: Title: HOLLINGSEAD INTERNATIONAL, INC. By: /s/ ------------------------------------- Name: Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By: /s/ ------------------------------------- Name: Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ ------------------------------------- Name: Title: 21 EX-4.5 37 EXHIBIT 4.5 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CUSIP 243662 AA1 12% Senior Subordinated Notes due 2008 No. 1 $100,000,000.00 DECRANE AIRCRAFT HOLDINGS, INC. promises to pay to CEDE & CO., or registered assigns, the principal sum of ONE HUNDRED MILLION Dollars ($100,000,000.00) on September 30, 2008. Interest Payment Dates: March 30 and September 30 Record Dates: March 15 and September 15. Dated: October 5, 1998 DECRANE AIRCRAFT HOLDINGS, INC. By: /s/ [Illegible] ------------------------------- Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: STATE STREET BANK AND TRUST COMPANY as Trustee By: /s/ Steven Cimalore -------------------------------- Name: STEVEN CIMALORE Title: VICE PRESIDENT - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Back of Note) 12% Senior Subordinated Notes due 2008 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OR THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT DECRANE AIRCRAFT HOLDINGS, INC. THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES AND OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OR REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUERS OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUERS THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUERS) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND, AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATIONS UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "ISSUER"), promises to pay interest on the principal amount of this Note at 12% per annum from October 5, 1998 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights AGreement referred to below. The Issuer will pay interest and Liquidated Damages semi-annually on March 30 and September 30 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "INTEREST PAYMENT DATE"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from October 5, 1998; PROVIDED that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; and PROVIDED FURTHER that the first Interest Payment Date shall be March 30, 1999. The Issuer shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; they shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Issuer will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the March 15 or September 15 next preceding the interest Payment Date, even if such Notes are canceled after such record date and on or before such interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office of the Paying Agent and Registrar. Holders of Notes must surrender their Notes to the Paying Agent to collect principal payments, and the Issuer may pay principal and interest and Liquidated Damages, if any, by check and may mail checks to a Holder's registered address; PROVIDED that all payments with respect to Global Notes and Definitive Notes, the Holders of which have given wire transfer instructions to the Issuer, will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuer may change any Paying Agent or Registrar without notice to any Holder. The Issuer or any of its subsidiaries may act in any such capacity. 4. INDENTURE The Issuer issued the Notes under an Indenture dated as of October 5, 1998 ("INDENTURE"), among the Issuer, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are obligations of the Issuer initially limited to $100.0 million in aggregate principal amount. 5. OPTIONAL REDEMPTION. (a) Except as provided in subparagraph (b) of this Paragraph 5, the Notes will not be redeemable at the Issuer's option prior to September 30, 2003. Thereafter, the Notes will be subject to redemption at any time at the option of the Issuer, in whole or in part, upon not less than 30 nor more than 60 days' notice, in cash at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on September 30 of the years indicated below:
Year Percentage ---- ---------- 2003..................... 106.000% 2004..................... 104.000% 2005..................... 102.000% 2006 an thereafter....... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, on or prior to September 30, 2001, the Issuer may redeem up to 35% of the aggregate principal amount of Notes ever issued under the Indenture in cash at a redemption price of 112% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; PROVIDED that at least 65% of the aggregate principal amount of Notes ever issued under the Indenture remains outstanding immediately after the occurrence of any such redemption; and PROVIDED FURTHER that such redemption shall occur within 90 days of the date of the closing of any such Public Equity Offering. (c) In addition, at any time prior to September 30, 2003, the Issuer may, at its option upon the occurrence of a Change of Control, redeem the Notes in whole but not in part, upon not less than 30 nor more than 60 days' prior notice (but in no event may any redemption occur more than 60 days after the occurrence of such Change of Control), in cash at a redemption price equal to (i) the present value of the sum of all the remaining interest (excluding accrued and unpaid interest, if any), premium and principal payments that would become due on the Notes as if the Notes were to remain outstanding and be redeemed on September 30, 2003, computed using a discount rate equal to the Treasury Rate plus 50 basis points, PLUS (ii) accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. 6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the Issuer is not required to make mandatory redemption of, or sinking fund payments with respect to, the Notes. 7. REPURCHASE AT OPTION OF HOLDER. (a) Upon the occurrence of a Change of Control (such date being the "CHANGE OF CONTROL PAYMENT"), each Holder of Notes shall have the right to require the Issuer to purchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to an offer at an offer price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of repurchase. Within 60 days following any Change of Control, subject to the provisions of the Indenture, the Issuer shall mail a notice to each Holder of Notes at such Holder's registered address setting forth the procedures governing the offer as required by the Indenture. (b) When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuer will be required to make an offer to all Holders of Notes to purchase the maximum principal amount of Notes that may be purchased out of Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidation Damages, if any, thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. Holders of Notes that are subject to an offer to purchase will receive an Asset Sale Offer from the Issuer prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse side of this Note. 8. NOTICE OF REDEMPTION. Notice of any redemption or offer to purchase will be mailed at least 30 days but not more than 60 days before the redemption or purchase date to each Holder of Notes to be redeemed or purchased at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date, interest and Liquidated Damages, if any, will cease to accrue on Note or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuer may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuer need not exchange or register the transfer if any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuer need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions set forth in the Indenture, the Indenture, the Note Guarantees or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Notwithstanding the foregoing, without the consent of any Holder of Notes, the Issuer, the Guarantors and the Trustee may amend or supplement the Indenture, the Note Guarantees or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Issuer's obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Issuer's assets, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not materially adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act or to provide for additional Note Guarantees of the Notes. 12. DEFAULTS AND REMEDIES. (A) Events of Default include: (a) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes (whether or not prohibited by the subordination provisions of the Indenture); (b) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (c) failure by the Issuer or any of its Restricted Subsidiaries for 30 days after receipt of notice from the Trustee or Holder of at least 25% in principal amount of the Notes then outstanding to comply with the provisions of Sections 4.07, 4.09, 4.10, 4.14 and Article 5 of the Indenture; (d) failure by the Issuer for 60 days after notice from the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding to comply with any of their other agreements in the Indenture or the Notes; (e) default under any mortgate, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer of any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Issuer or any of its Restricted Subsidiaries), whether such indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (i) is caused by a failure to pay Indebtedness at its stated final maturity (after giving effect to any applicable grace period provided in such Indebtedness) (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its stated final maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more; (f) failure by the Issuer or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $10.0 million ( ) of any amounts with respect to which a reputable and creditworthy insurance company has acknowledged liability in writing), which judgments are not paid, discharged or stayed for a period of 60 days, (g) except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and (h) certain events of bankruptcy or insolvency with respect to the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately: PROVIDED that, so long as any Indebtedness permitted to be incurred pursuant to the New Credit Facility shall be outstanding, such acceleration shall not be effective until the earlier of (a) an acceleration of any such Indebtedness under the New Credit Facility or (b) five business days after receipt by the Issuer and the administrative agent under the New Credit Facility of written notice of such acceleration. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. (b) In the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (e) of the preceding paragraph, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in clause (e) have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days of the date of such declaration and if (i) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction and (ii) all existing Events of Default, except non-payment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived. 13. SUBORDINATION. The payment of Subordinated Note Obligations will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full in cash or cash equivalents of all Senior Indebtedness, whether outstanding on the date of the Indenture or thereafter incurred. The Issuer agrees, and each Holder by accepting a Note agrees, that the payment of premium and interest and Liquidated Damages, if any, on the Notes is subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payment in full in cash or cash equivalents of all Senior Indebtedness (whether outstanding on the date hereof or thereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Indebtedness. 14. NOTE GUARANTEES. The payment of principal of, premium, and interest and Liquidated Damages, if any, on the Notes are unconditionally guaranteed, jointly and severally, on a senior subordinated basis by the Guarantors. 15. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes shall have the rights set forth in the Registration Rights Agreement dated as of October 5, 1998, among the Issuer, the Guarantors and the parties named on the signature pages thereof (the "REGISTRATION RIGHTS AGREEMENT"). 16. TRUSTEE DEALINGS WITH THE ISSUER. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuer or its Affiliates, and may otherwise deal with Issuer or its Affiliates, as if it were not the Trustee. 17. NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder, of the Issuer, as such, shall not have any liability for any obligations of the Issuer under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 18. AUTHENTICATION. The Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gift to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuer has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Issuer will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, California 90245 Attention: Chief Financial Officer ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - ----------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ------------------------------------------------------- to transfer this Note on the books of the Issuer. The agent may substitute another to act for him. - ----------------------------------------------------------------------------- Date: -------------------- Your Signature: --------------------------------- (Sign exactly as your name appears on the face of this Note) Signature Guarantee: OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Issuer pursuant to Section 4.10 or 4.14 of the Indenture, check the box below: / / Section 4.10 / / Section 4.14 If you want to elect to have only part of the Note purchased by the Issuer pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $ ------------------ Date: Your Signature: --------------------- -------------------------------- (Sign exactly as your name appears on the Note) Tax Identification No.: ------------------------ Signature Guarantee: SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount Signature of Principal Amount Principal of this Global Note authorized officer of this Amount of this following such of Trustee or Date of Exchange Global Note Global Note decrease (or increase) Note Custodian - ---------------- ----------- ----------- ---------------------- --------------
NOTE GUARANTEE Each of the Guarantors set forth below, which in accordance with Section 4.18 of the Indenture, dated as of October 5, 1998 (the "Indenture"), are required to guarantee the obligations of DeCrane Aircraft Holdings, Inc. (the "Issuer") under the 12% Senior Subordinated Notes due 2008 (the "Notes") hereby unconditionally guarantees, to the fullest extent permitted by law, (i) the due and punctual payment of the principal of, interest and Liquidated Damages, if any, on the Notes, whether at the maturity or interest payment date, by acceleration, call for redemption or otherwise, and of interest on the overdue principal of, interest and Liquidated Damages, if any, on the Notes and all other obligations of the Issuer to the Holders or the Trustee under the Indenture or the Notes and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. The obligations of each such Guarantor under this Note Guarantee are joint and several obligations. The obligations of each Guarantor to the Holders and to the Trustee pursuant to this Note Guarantee and the Indenture are as expressly set forth in Article 11 of the Indenture and in such other provisions of the Indenture as are applicable to Guarantors, and reference is hereby made to such Indenture for the precise terms of this Note Guarantee. The terms of Article 11 of the Indenture (including, without limitation, Section 11.03 of the Indenture) and such other provisions of the Indenture as are applicable to Guarantors are incorporated herein by reference. Each of the Guarantors may provide a substitute guarantee in substitution for this Note Guarantee, in such form as shall be appropriate under the laws of its jurisdiction of incorporation, and upon such substitution, such substitute guarantee shall be effective from and after the date of this Note Guarantee as if it had been in effect from the date hereof, and, upon such substitution, this Note Guarantee shall terminate and thereafter be or by force or effect as to such Guarantor. This is a continuing guarantee and shall remain in full force and effect and shall be binding upon each Guarantor and its successors and assigns until full and final payment of all of the Issuer's obligations under the Notes and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This is a guarantee of payment and not a guarantee of collection. This Note Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Note Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. In case any provision in this Note Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS NOTE GUARANTEE. [Signature on following page] AEROSPACE DISPLAY SYSTEMS, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: AUDIO INTERNATIONAL, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: AVTECH CORPORATION By: /s/ R. Jack DeCrane ----------------------------- Name: Title: CORY COMPONENTS, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: DETTMERS INDUSTRIES, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: ELSINORE AEROSPACE SERVICES, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: ELSINORE ENGINEERING, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: HOLLINGSEAD INTERNATIONAL, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: TRI-STAR ELECTRONICS INTERNATIONAL, INC. By: /s/ R. Jack DeCrane ----------------------------- Name: Title: Dated: October 5, 1998 THIS GLOBAL WARRANT IS HELD BY THE DEPOSITARY (AS DEFINED IN THE WARRANT AGREEMENT GOVERNING THIS WARRANT) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE WARRANT AGENT MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 3.5 OF THE WARRANT AGREEMENT, (II) THIS GLOBAL WARRANT MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 3.5(a) OF THE WARRANT AGREEMENT, (III) THIS GLOBAL WARRANT MAY BE DELIVERED TO THE WARRANT AGENT FOR CANCELLATION PURSUANT TO SECTION 3.8 OF THE WARRANT AGREEMENT AND (IV) THIS GLOBAL WARRANT MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS (THE "UNITS"), EACH OF WHICH CONSIST OF $1,000 PRINCIPAL AMOUNT AT MATURITY OF THE 12% SENIOR SUBORDINATED NOTES DUE 2008 OF DECRANE AIRCRAFT HOLDINGS, INC. (THE "NOTES") AND ONE WARRANT (THE "WARRANTS") INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 1.55 SHARES, PAR VALUE $0.01 PER SHARE, OF DECRANE HOLDINGS CO. PRIOR TO THE EARLIEST TO OCCUR OF (I) 180 DAYS AFTER THE CLOSING OF THE OFFERING OF THE UNITS, (II) THE DATE ON WHICH A REGISTRATION STATEMENT WITH RESPECT TO A REGISTERED EXCHANGE OFFER FOR THE NOTES IS DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (III) THE DATE A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES IS DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (IV) SUCH DATE AS DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION IN ITS SOLE DISCRETION SHALL DETERMINE AND (V) THE OCCURRENCE OF A CHANGE OF CONTROL (AS DEFINED IN THE INDENTURE GOVERNING THE NOTES), THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES. THIS SECURITY (OR ITS PREDECESSOR) AND THE WARRANT SHARES TO BE ISSUED UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER; (I) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),(2),(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE WARRANT AGENT) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITY LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION (3) AGREES NOT TO ENGAGE IN HEDGING TRANSACTIONS UNLESS IN COMPLIANCE WITH THE SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING. EX-10.2 38 EXHIBIT 10.2 AMENDED AND RESTATED INVESTORS' AGREEMENT dated as of October 2, 1998 by and among DECRANE HOLDINGS CO., DLJ MERCHANT BANKING PARTNERS, II, L.P., DLJ MERCHANT BANKING PARTNERS II-A, L.P., DLJ OFFSHORE PARTNERS II, C.V., DLJ DIVERSIFIED PARTNERS, L.P. DLJ DIVERSIFIED PARTNERS -A, L.P., DLJ MILLENNIUM PARTNERS, L.P. DLJ MILLENNIUM PARTNERS -A, L.P. DLJMB FUNDING II, INC., UK INVESTMENT PLAN 1997 PARTNERS, DLJ EAB PARTNERS, L.P., DLJ FIRST ESC L.P., DLJ ESC II L.P. and certain other Stockholders named herein TABLE OF CONTENTS ---------------
PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 2 CORPORATE GOVERNANCE SECTION 2.01 COMPOSITION OF THE BOARD . . . . . . . . . . . . . . . . . 10 SECTION 2.02 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.03 VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.04 MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.05 ACTION BY THE BOARD. . . . . . . . . . . . . . . . . . . . 10 SECTION 2.06 CONFLICTING CHARTER OR BYLAW PROVISIONS. . . . . . . . . . 11 ARTICLE 3 RESTRICTIONS ON TRANSFER SECTION 3.01 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.02 LEGENDS. . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.03 PERMITTED TRANSFEREES. . . . . . . . . . . . . . . . . . . 12 SECTION 3.04 RESTRICTIONS ON TRANSFERS BY MANAGEMENT STOCKHOLDERS . . . 12 SECTION 3.05 RESTRICTIONS ON TRANSFERS BY THE INVESTORS . . . . . . . . 13 ARTICLE 4 TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS SECTION 4.01 RIGHTS TO PARTICIPATE IN TRANSFER. . . . . . . . . . . . . 14 SECTION 4.02 RIGHTS TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS. . . . 15 SECTION 4.03 CERTAIN RIGHTS . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 5 REGISTRATION RIGHTS SECTION 5.01 DEMAND REGISTRATION. . . . . . . . . . . . . . . . . . . . 17 SECTION 5.02 INCIDENTAL REGISTRATION. . . . . . . . . . . . . . . . . . 20 SECTION 5.03 HOLDBACK AGREEMENTS. . . . . . . . . . . . . . . . . . . . 21 SECTION 5.04 REGISTRATION PROCEDURES. . . . . . . . . . . . . . . . . . 21 SECTION 5.05 INDEMNIFICATION BY THE COMPANY . . . . . . . . . . . . . . 24
PAGE ---- SECTION 5.06 INDEMNIFICATION BY PARTICIPATING STOCKHOLDERS. . . . . . . 25 SECTION 5.07 CONDUCT OF INDEMNIFICATION PROCEEDINGS . . . . . . . . . . 26 SECTION 5.08 CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 5.09 PARTICIPATION IN PUBLIC OFFERING . . . . . . . . . . . . . 28 SECTION 5.10 OTHER INDEMNIFICATION. . . . . . . . . . . . . . . . . . . 29 SECTION 5.11 COOPERATION BY THE COMPANY . . . . . . . . . . . . . . . . 29 ARTICLE 6 MISCELLANEOUS SECTION 6.01 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.02 BINDING EFFECT; BENEFIT. . . . . . . . . . . . . . . . . . 29 SECTION 6.03 EXCLUSIVE FINANCIAL AND INVESTMENT BANKING ADVISOR . . . . 29 SECTION 6.04 ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 6.05 AMENDMENT; WAIVER; TERMINATION . . . . . . . . . . . . . . 30 SECTION 6.06 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 6.07 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 6.08 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 6.09 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 6.10 SPECIFIC ENFORCEMENT . . . . . . . . . . . . . . . . . . . 31 SECTION 6.11 CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . 31
ii AMENDED AND RESTATED INVESTORS' AGREEMENT AMENDED AND RESTATED INVESTORS' AGREEMENT dated as of October 2, 1998 among (i) DeCrane Holdings Co., a Delaware corporation (the "COMPANY"), and (ii) DLJ Merchant Banking Partners II, L.P., a Delaware limited partnership, DLJ Offshore Partners II, C.V., a Netherlands Antilles limited partnership, DLJ Merchant Banking Partners II-A, L.P., a Delaware limited partnership, DLJ Diversified Partners, L.P., a Delaware limited partnership, DLJ Diversified Partners-A, L.P., a Delaware limited partnership, DLJ EAB Partners, L.P., a Delaware limited partnership, DLJ Millenium Partners, L.P., a Delaware limited partnership, DLJ Millennium Partners-A, L.P., a Delaware limited partnership, DLJMB Funding II, Inc., a Delaware corporation, UK Investment Plan 1997 Partners, a Delaware partnership, DLJ First ESC L.P., a Delaware limited partnership and DLJ ESC II L.P., a Delaware limited partnership, (each of the foregoing, a "DLJ ENTITY", and collectively, the "DLJ ENTITIES"). WITNESSETH WHEREAS, in connection with the merger (the "MERGER") of DeCrane Acquisition Co., a Delaware corporation and an indirect second tier subsidiary of the Company, with and into DeCrane Aircraft Holdings, Inc., a Delaware corporation, pursuant to the Agreement and Plan of Merger (the "MERGER AGREEMENT") dated as of July 16, 1998 between the parties to the Merger certain parties hereto have acquired or will be acquiring equity securities of the Company; WHEREAS, the parties hereto desire to enter into this Agreement to govern certain of their rights, duties and obligations after consummation of the transactions contemplated by the Merger Agreement; NOW, THEREFORE, in consideration of the covenants and agreements contained herein and in the Merger Agreement, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS. (a) The following terms, as used herein, have the following meanings: "ADVERSE PERSON" means any Person whom the Board determines is a competitor or a potential competitor of the Company or any of its Subsidiaries or to whom the Board determines a transfer of Shares would be inadvisable. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person; PROVIDED that no stockholder of the Company shall be deemed an Affiliate of any other stockholder of the Company solely by reason of any investment in the Company. For the purpose of this definition, the term "CONTROL" (including with correlative meanings, the terms "CONTROLLING", "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), when used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AFFILIATED EMPLOYEE BENEFIT TRUST" means any trust that is a successor to the assets held by a trust established under an employee benefit plan subject to ERISA or any other trust established directly or indirectly under such plan or any other such plan having the same sponsor. "AGGREGATE OWNERSHIP" means, with respect to any Stockholder or group of Stockholders, and with respect to any class of Company Securities, the total number or amount of such class of Company Securities "beneficially owned" (as such term is defined in Rule 13d-3 under the Exchange Act) (without duplication) by such Stockholder or group of Stockholders as of the date of such calculation (but adjusted in accordance with the proviso below), calculated on a Fully Diluted basis and taking into account any stock dividend, stock split or reverse stock split; PROVIDED that such number or amount of such class of Company Securities shall be increased (without duplication) with respect to any Stockholder, by any stock appreciation rights, options, warrants or other rights to purchase or subscribe for Common Shares of such Other Stockholder as and when such stock appreciation rights, options, warrants or other rights have vested. "BOARD" means the board of directors of the Company. 2 "BUSINESS DAY" means any day except a Saturday or other day on which commercial banks in New York City are authorized by law to close. "BYLAWS" means the Bylaws of the Company, as amended from time to time. "CHANGE OF CONTROL" means: (a) any "person" or "group of persons" (within the meaning of Section 13 or 14 of the Exchange Act), other than the DLJ Entities and/or their respective Permitted Transferees, acquires, directly or indirectly, by virtue of the consummation of any purchase, merger or other combination, beneficial ownership (within the meaning of Section 13(d)(3) of the Exchange Act) of securities of the Company representing more than 51% of the combined voting power of the Company's then outstanding voting securities with respect to matters submitted to a vote of the stockholders generally; or (b) a sale or transfer by the Company or any of its Subsidiaries of substantially all of the consolidated assets of the Company and its Subsidiaries to an entity which is not an Affiliate of the Company prior to such sale or transfer. "CHARTER" means the Certificate of Incorporation of the Company, as amended from time to time. "CLOSING DATE" means August 28, 1998. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMON STOCK" means the common stock, par value $0.01 per share, of the Company and any stock into which such Common Stock may thereafter be converted or changed, and "COMMON SHARES" means shares of Common Stock. "COMPANY SECURITIES" means the Common Stock and securities convertible into or exchangeable for Common Stock, the Preferred Stock and options, warrants (including the Warrants) or other rights to acquire Common Stock, Preferred Stock or any other equity security issued by the Company. "DRAG-ALONG PORTION" means, with respect to any Other Stockholder and any class of Company Securities, the number of such class of Company Securities beneficially owned by such Other Stockholder on a Fully Diluted basis multiplied by a fraction, the numerator of which is the number of such class of Company 3 Securities proposed to be sold by the DLJ Entities on behalf of the DLJ Entities and the Other Stockholders and the denominator of which is the total number of such class of Company Securities beneficially owned by the Stockholders on a Fully Diluted basis. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FULLY DILUTED" means, with respect to Common Stock and without duplication, all outstanding Common Shares and all Common Shares issuable in respect of securities convertible into or exchangeable for Common Shares, stock appreciation rights, options, warrants (including the Warrants) and other rights to purchase or subscribe for Common Shares or securities convertible into or exchangeable for Common Shares; PROVIDED that, to the extent any of the foregoing stock appreciation rights, options, warrants or other rights to purchase or subscribe for Common Shares are subject to vesting, the Common Shares subject to vesting shall be included in the definition of "FULLY DILUTED" only upon and to the extent of such vesting. "INITIAL OWNERSHIP" means, with respect to any Stockholder and any class of Company Securities, the number of shares or units of such class of Company Securities beneficially owned (and (without duplication) which such Persons have the right to acquire from any Person) as of the date hereof, or in the case of any Person that shall become a party to this Agreement on a later date, as of such date, taking into account any stock split, stock dividend, reverse stock split or similar event. "INITIAL PUBLIC OFFERING" means the initial sale after the date hereof of Registrable Securities pursuant to an effective registration statement under the Securities Act (other than a registration statement on Form S-8 or any successor form). "INVESTORS" means each investor in the Company's equity (other than the DLJ Entities, the Management Stockholders and their respective Permitted Transferees), if any, who becomes a Stockholder after the date of this Agreement for so long as such investor shall beneficially own any Company Securities. "MANAGEMENT STOCKHOLDERS" means each of the members of management of the Company (if any) who becomes a Stockholder after the date of this Agreement for so long as such member of management shall beneficially own any Company Securities. 4 "Other Stockholders" means all Stockholders and their respective Permitted Transferees, other than the DLJ Entities and their respective Permitted Transferees. "PERMITTED TRANSFEREE" means: (i) in the case of any DLJ Entity (A) any other DLJ Entity, (B) any general or limited partner of any DLJ Entity (a "DLJ PARTNER"), and any corporation, partnership, Affiliated Employee Benefit Trust or other entity that is an Affiliate of any DLJ Partner (collectively, the "DLJ AFFILIATES"), (C) any managing director, director, general partner, limited partner, officer or employee of any DLJ Entity or of any DLJ Affiliate, or the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any of the foregoing persons referred to in this clause (C) (collectively, the "DLJ ASSOCIATES"), (D) a trust, the beneficiaries of which, or a corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, include only DLJ Entities, DLJ Affiliates, DLJ Associates, their spouses or their lineal descendants or (E) a voting trustee for one or more DLJ Entities, DLJ Affiliates or DLJ Associates under the terms of a voting trust designed to conform with the requirements of the Insurance Law of the State of New York; and (ii) in the case of any Other Stockholder (A) any Other Stockholder, (B) a Person to whom Shares are transferred from such Other Stockholder (1) by will or the laws of descent and distribution or (2) by gift without consideration of any kind; PROVIDED that, in the case of clause (2), such transferee is the issue or spouse of such Other Stockholder or (C) a trust that is for the exclusive benefit of such Other Stockholder or its Permitted Transferees under (B) above. "PERSON" means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PREFERRED STOCK" means the 14% Senior Redeemable Exchangeable Preferred Stock, par value $0.01 per share, of the Company, and "PREFERRED SHARES" means shares of Preferred Stock. "PRO RATA PORTION" means the number of Common Shares a Stockholder holds multiplied by a fraction, the numerator of which is the number of Common Shares to be sold by the DLJ Entities and their Permitted Transferees in a Public Offering and the denominator of which is the total number of Common Shares, on 5 a Fully Diluted basis, held in the aggregate by the DLJ Entities and their Permitted Transferees prior to such Public Offering. "PUBLIC OFFERING" means any primary or secondary public offering of Registrable Securities of the Company pursuant to an effective registration statement under the Securities Act other than pursuant to a registration statement filed in connection with a transaction of the type described in Rule 145 of the Securities Act or for the purpose of issuing securities pursuant to an employee benefit plan. "REGISTRABLE SECURITIES" means at any time, with respect to any Stockholder or its Permitted Transferees, any Shares of Warrants and any securities issued or issuable in respect of such Shares or Warrants by way of conversion, exchange, stock dividend, split or combination, recapitalization, merger, consolidation or other reorganization or otherwise until (i) a registration statement covering such Shares or Warrants has been declared effective by the SEC and such Shares or Warrants have been disposed of pursuant to such effective registration statement, (ii) such Shares or Warrants are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met or (iii) such Shares or Warrants are otherwise transferred, the Company has delivered a new certificate or other evidence of ownership for such Shares or Warrants not bearing the legend required pursuant to this Agreement and such Shares or Warrants may be resold without subsequent registration under the Securities Act. "REGISTRATION EXPENSES" means (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities registered), (iii) printing expenses, (iv) internal expenses of the Company (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) reasonable fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letter requested pursuant to Section 5.04(h) hereof), (vi) the reasonable fees and expenses of any special experts retained by the Company in connection with the applicable registration, (vii) reasonable fees and expenses of up to one counsel for the Stockholders participating in the offering selected (A) by the DLJ Entities, in the case of any offering in which such entities participate, or (B) in any other case, by the Other Stockholders holding the majority of the Shares or Warrants to be sold for the account of all Other Stockholders in the offering, (viii) fees and expenses in connection with any review of underwriting arrangements by the 6 National Association of Securities Dealers, Inc. (the "NASD"), including fees and expenses of any "QUALIFIED INDEPENDENT UNDERWRITER", and (ix) fees and disbursements of underwriters customarily paid by issuers or sellers of securities; but shall not include any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities, or any out-of-pocket expenses (except as set forth in clause (vii) above) of the Stockholders (or the agents who manage their accounts) or any fees and expenses of underwriter's counsel. "RESTRICTION TERMINATION DATE" means the earlier to occur of (a) the second anniversary of the First Public Offering and (b) the fifth anniversary of the Closing Date. "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SHARES" means the Common Shares and the Preferred Shares. "STOCKHOLDER" means each Person (other than the Company) who shall be a party to or bound by this Agreement, whether in connection with the execution and delivery hereof as of the date hereof, pursuant to Section 6.04 or otherwise, so long as such Person shall beneficially own any Company Securities. "SUBSIDIARY" means, with respect to any Person, any entity of which ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "TAG-ALONG PORTION" means with respect to any Tagging Person or the Selling Person, as the case may be: (i) where the Selling Person is selling Common Shares, the number of Common Shares beneficially owned by such Tagging Person or the Selling Person, as the case may be, on a Fully Diluted Basis multiplied by a fraction, the numerator of which is the number of Common Shares proposed to be sold in the Tag-Along Sale pursuant to Section 4.01 and the denominator of which is the aggregate number of Common Shares beneficially owned by all Stockholders on a Fully Diluted basis, (ii) where the Selling Person is selling Preferred Shares, the number of Preferred Shared beneficially owned by such Tagging Person or the Selling Person, as the case may be, multiplied by a fraction, the numerator of which is the number of Preferred Shares proposed to be sold in the Tag-Along Sale pursuant to 7 Section 4.01 and the denominator of which is the aggregate number of Preferred Shares beneficially owned by all Stockholders, and (iii) where the Selling Person is selling Warrants, the number of Common Shares beneficially owned (or, without duplication, acquirable under the Warrants) by such Tagging Person or the Selling Person, as the case may be, on a Fully Diluted Basis multiplied by a fraction, the numerator of which is the number of Common Shares for which the Warrants proposed to be sold in the Tag-Along Sale pursuant to Section 4.01 are exercisable and the denominator of which is the aggregate number of Common Shares beneficially owned by all Stockholders on a Fully Diluted Basis, PROVIDED that where a Tag-Along Right includes the right to sell Common Stock, any holder of Warrants may, in lieu of exercising Warrants, transfer Warrants for some or all of that number of Common Shares as would otherwise have constituted its Tag-Along Portion, in which event the price to be received with respect to each such Warrant shall be the price per Common Share applicable to the Tag-Along Offer, less the then applicable exercise price of the Warrants owned by such holder. "THIRD PARTY" means a prospective purchaser of Company Securities in an arm's-length transaction from a Stockholder where such purchaser is not a Permitted Transferee of such Stockholder. "UNDERWRITTEN PUBLIC OFFERING" means a firmly underwritten Public Offering. "WARRANTS" means the warrants issued by the Company to the Stockholders for the purchase of an aggregate of 155,000 Common Shares (subject to adjustment as provided for herein). (b) The term "DLJ ENTITIES", to the extent such entities shall have transferred any of their Shares to "Permitted Transferees", shall mean the DLJ Entities and the Permitted Transferees of the DLJ Entities, taken together, and any right or action that may be taken at the election of the DLJ Entities may be taken at the election of the DLJ Entities and such Permitted Transferees. (c) The term "OTHER STOCKHOLDERS", to the extent such stockholders shall have transferred any of their Company Securities to "Permitted Transferees", shall mean the Other Stockholders and the Permitted Transferees of the Other Stockholders, taken together, and any right or action that may be taken at the election of the Other Stockholders may be taken at the election of the Other Stockholders and such Permitted Transferees. 8 (d) Each of the following terms is defined in the Section set forth opposite such term:
TERM SECTION Applicable Holdback Period 5.03 Demand Registration 5.01(a) DLJMB 2.01 DLJSC 6.03 Drag-Along Rights 4.02(a) Holders 5.01(a)(ii) Incidental Registration 5.02(a) Indemnified Party 5.07 Indemnifying Party 5.07 Independent Director 2.01(a) Inspectors 5.04(g) Maximum Offering Size 5.01(e) Merger recitals Merger Agreement recitals Nominee 2.03(a) Public Offering Limitation 3.04(a) Records 5.04(g) Section 4.01 Response Notice 4.01(a) Section 4.02 Notice 4.02(a) Section 4.02 Notice Period 4.02(a) Section 4.02 Sale 4.02(a) Section 4.02 Sale Price 4.02(a) Selling Person 4.01(a) Selling Stockholder 5.01(a) Tag-Along Notice 4.01(a) Tag-Along Notice Period 4.01(a) Tag-Along Offer 4.01(a) Tag-Along Right 4.01(a) Tag-Along Sale 4.01(a) Tagging Person 4.01(a) transfer 3.01(a)
9 ARTICLE 2 CORPORATE GOVERNANCE SECTION 2.01. COMPOSITION OF THE BOARD. (a) The Board shall consist initially of six directors, all of whom shall be designated by DLJ Merchant Banking Partners II, L.P. ("DLJMB") and one of whom shall not be either an "Affiliate" or an "Associate" (as such terms are used within the meaning of Rule 12b-2 under the Exchange Act) of any of the DLJ Entities (the "INDEPENDENT DIRECTOR"). (b) Each Stockholder entitled to vote for the election of directors to the Board agrees that it will vote its Common Shares or execute written consents, as the case may be, and take all other necessary action (including causing the Company to call a special meeting of stockholders) in order to ensure that the composition of the Board is as set forth in this Section 2.01. SECTION 2.02. REMOVAL. Each Stockholder agrees that if, at any time, it is then entitled to vote for the removal of directors of the Company, it will not vote any of its Common Shares in favor of the removal of any director who shall have been designated or nominated pursuant to Section 2.01 unless such removal shall be for cause or the Persons entitled to designate or nominate such director shall have consented to such removal in writing. SECTION 2.03. VACANCIES. If, as a result of death, disability, retirement, resignation, removal (with or without cause) or otherwise, there shall exist or occur any vacancy of the Board: (a) the Person or Persons entitled under Section 2.01 to designate or nominate such director whose death, disability, retirement, resignation or removal resulted in such vacancy may designate another individual (the "NOMINEE") to fill such capacity and serve as a director of the Company; and (b) each Stockholder then entitled to vote for the election of the Nominee as a director of the Company agrees that it will vote its Common Shares, or execute a written consent, as the case may be, in order to ensure that the Nominee is elected to the Board. SECTION 2.04. MEETINGS. The Board shall hold a regularly scheduled meeting at least once every fiscal quarter. SECTION 2.05. ACTION BY THE BOARD. (a) A quorum of the Board shall consist of three directors. All actions of the Board shall require the affirmative 10 vote of at least a majority of the directors present at a duly convened meeting of the Board at which a quorum is present or the unanimous written consent of the Board; PROVIDED that, in the event there is a vacancy on the Board and an individual has been nominated to fill such vacancy, the first order of business shall be to fill such vacancy. (b) The Board may create executive, compensation and audit committees, as well as such other committees as it may determine. SECTION 2.06. CONFLICTING CHARTER OR BYLAW PROVISIONS. Each Stockholder shall vote its Common Shares or execute written consents, as the case may be, and take all other actions necessary, to ensure that the Company's Charter and Bylaws facilitate and do not at any time conflict with any provision of this Agreement. ARTICLE 3 RESTRICTIONS ON TRANSFER SECTION 3.01. GENERAL. (a) Each Stockholder understands and agrees that the Company Securities purchased pursuant to the applicable subscription agreement have not been registered under the Securities Act and are restricted securities. Each Stockholder agrees that it will not, directly or indirectly, sell, assign, transfer, grant a participation in, pledge or otherwise dispose of ("transfer") any Company Securities (or solicit any offers to buy or otherwise acquire, or take a pledge of any Company Securities) except in compliance with the Securities Act and the terms and conditions of this Agreement. Subject to the Securities Act and Section 4.01, Company Securities may be freely transferred by any DLJMB Entities. (b) Any attempt to transfer any Company Securities not in compliance with this Agreement shall be null and void and the Company shall not, and shall cause any transfer agent not to, give any effect in the Company's stock records to such attempted transfer. SECTION 3.02. LEGENDS. In addition to any other legend that may be required, each certificate for Shares or Warrants that is issued to any Stockholder shall bear a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY 11 STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE AMENDED AND RESTATED INVESTORS' AGREEMENT DATED AS OF OCTOBER 2, 1998. COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM DECRANE HOLDINGS CO. OR ANY SUCCESSOR THERETO. If any Company Securities shall cease to be Registrable Securities under clause (i) or clause (ii) of the definition thereof, the Company shall, upon the written request of the holder thereof, issue to such holder a new certificate evidencing such securities without the first sentence of the legend required by this Section endorsed thereon. If any Company Securities shall cease to be subject to any and all restrictions on transfer set forth in this Agreement, the Company shall, upon the written request of the holder thereof, issue to such holder a new certificate evidencing such securities without the second sentence of the legend required by this Section endorsed thereon. SECTION 3.03. PERMITTED TRANSFEREES. Notwithstanding anything in this Agreement to the contrary, any Stockholder may at any time transfer any or all of its Company Securities to one of more of its Permitted Transferees without the consent of the Board or any other Stockholder or group of Stockholders and without compliance with Sections 3.04, 3.05 and 4.01 so long as (a) such Permitted Transferee shall have agreed in writing to be bound by the terms of this Agreement and (b) the transfer to such Permitted Transferee is not in violation of applicable federal or state securities laws. SECTION 3.04. RESTRICTIONS ON TRANSFERS BY MANAGEMENT STOCKHOLDERS. (a) Each Management Stockholder and each Permitted Transferee of such Management Stockholder may transfer its Company Securities only as follows: (i) in a transfer made in compliance with Section 4.01 or 4.02, or as permitted or required by any employment contract between the Company or any Subsidiary and an employee; (ii) subject to the Public Offering Limitations, in a Public Offering in connection with the exercise of its rights under Section 5.02 hereof; (iii) in a transfer made at the conclusion of the Applicable Holdback Period (as defined in Section 5.03) following a Public Offering, in compliance with Rule 144 promulgated under the Securities Act; 12 PROVIDED, HOWEVER, that until the Restriction Termination Date, the Aggregate Ownership of such Management Stockholder as a result of such transfer shall be equal to or exceed the greater of (x) 50% of such Management Stockholder's Initial Ownership and (y) the percentage of such Management Stockholder's Initial Ownership that is equal to the Aggregate Ownership of the DLJ Entities as a percentage of the DLJ Entities' Initial Ownership; or (iv) following the Restriction Termination Date, to any Third Party other than an Adverse Person for consideration consisting solely of cash; PROVIDED, HOWEVER, that the number of Common Shares transferred by such Management Stockholder pursuant to this Section 3.04 (a)(iv) in any twelve month period shall not exceed 20% of such Management Stockholder's Aggregate Ownership at the beginning of such twelve month period. For purposes of this Agreement, "PUBLIC OFFERING LIMITATIONS" means (A) no Management Stockholder shall be permitted to exercise its rights under Section 5.02 hereof (x) with respect to the Initial Public Offering and (y) until such time as the Aggregate Ownership of the DLJ Entities shall be less than 50% of their aggregate Initial Ownership and (B) in each Public Offering following the Initial Public Offering, such Management Stockholder shall be entitled to transfer a number of Shares not exceeding such Management Stockholder's Pro Rata Portion of such Management Stockholder's Shares. (b) The provisions of Section 3.04(a) shall terminate upon the earliest to occur of (i) the tenth anniversary of the Closing Date and (ii) a Change of Control. Notwithstanding the foregoing sentence, the provisions of Section 3.04(a) shall not terminate with respect to any Management Stockholder's Shares which shall have been pledged to the Company as security in connection with any indebtedness for borrowed money owed by such Management Stockholder to the Company unless the proceeds from the sale of such Shares are applied to repay such indebtedness in full. SECTION 3.05. RESTRICTIONS ON TRANSFERS BY THE INVESTORS. (a) Except as provided in Section 3.03, each of the Investors and its Permitted Transferees may transfer its Company Securities only as follows: (i) in a transfer made in compliance with Section 4.01 or 4.02; or (ii) in a Public Offering in connection with the exercise of its rights under Article 5 hereof. 13 (b) The provisions of Section 3.05(a) shall terminate upon the earlier to occur of (i) the tenth anniversary of the Closing Date and (ii) a Change of Control. ARTICLE 4 TAG-ALONG RIGHTS; DRAG-ALONG RIGHTS SECTION 4.01 RIGHTS TO PARTICIPATE IN TRANSFER. (a) If DLJ Entities (the "SELLING PERSON") propose to transfer (other than transfers of Common Shares (i) in a Public Offering or (ii) to any Permitted Transferee of any of the DLJ Entities) a number of Company Securities equal to or exceeding 20% of the Aggregate Ownership of the DLJ Entities in a single transaction or in a series of related transactions on the date of the proposed sale (a "TAG-ALONG SALE"), the Other Stockholders may, at their option, elect to exercise their rights under this Section 4.01 (each such Stockholder, a "TAGGING PERSON"). In the event of such a proposed transfer, the Selling Person shall provide each Other Stockholder written notice of the terms and conditions of such proposed transfer ("TAG-ALONG NOTICE") and offer each Tagging Person the opportunity to participate in such sale. The Tag-Along Notice shall identify the number and type of Company Securities subject to the offer ("TAG-ALONG OFFER"), the cash price at which the transfer is proposed to be made, and all other material terms and conditions of the Tag-Along Offer. Each Tagging Person shall have the right (a"TAG-ALONG RIGHT"), exercisable by written notice ("SECTION 4.01 RESPONSE NOTICE") given to the Selling Person within 10 Business Days of the date of receipt of the Tag-Along Notice by such Tagging Person (the "TAG-ALONG NOTICE PERIOD"), to request that the Selling Person include in the proposed transfer the number and type of Company Securities held by such Tagging Person as is specified in such notice; PROVIDED that if the aggregate number of Company Securities proposed to be sold by the Selling Person and all Tagging Persons in such transaction exceeds the number of Company Securities which can be sold on the terms and conditions set forth in the Tag-Along Notice, then only the Tag-Along Portion of the Company Securities of each Tagging Person shall be sold pursuant to the Tag-Along Offer and the Selling Person shall sell its Tag-Along Portion of the Company Securities and such additional Company Securities as permitted by Section 4.01(d). Each Tagging Person shall deliver to the Selling Person, together with its Section 4.01 Response Notice, the certificate or certificates representing the Company Securities of such Tagging Person to be included in the transfer, together with a limited power-of-attorney authorizing the Selling Person to transfer such Company Securities on the terms set forth in the Tag-Along Notice. Delivery of such certificate or certificates representing the Company Securities to be 14 transferred and the limited power-of-attorney authorizing the Selling Person to transfer such Company Securities shall constitute an irrevocable acceptance of the Tag-Along Offer by such Tagging Persons. If, at the end of a 120 day period after such delivery, the Selling Person has not completed the transfer of all such Company Securities on substantially the same terms and conditions set forth in the Tag-Along Notice, the Selling Person shall return to each Tagging Person the limited power-of attorney (and all copies thereof) together with certificates representing the unsold Company Securities which such Tagging Person delivered for transfer pursuant to this Section 4.01. (b) Concurrently with the consumption of the Tag-Along Sale, the Selling Person shall notify the Tagging Persons thereof, shall remit to the Tagging Person the total consideration (by bank or certified check) for the Company Securities of the Tagging Person transferred pursuant thereto, and shall, promptly after the consummation of such Tag-Along Sale, furnish such other evidence of the completion and time of completion of such transfer and the terms thereof as may be reasonably requested by the Tagging Persons. (c) If at the termination of the Tag-Along Notice Period any Tagging Person shall not have elected to participate in the Tag-Along Sale, such Tagging Person will be deemed to have waived its rights under Section 4.01(a) with respect to the transfer of its Company Securities pursuant to such Tag-Along Sale. (d) If any Tagging Person declines to exercise its Tag-Along Rights or elects to exercise its Tag-Along Rights with respect to less than such Tagging Person's Tag-Along Portion, the DLJ Entities shall be entitled to transfer, pursuant to the Tag-Along Offer, a number and type of Company Securities held by the DLJ Entities equal to the number and type of Company Securities constituting the portion of such Tagging Person's Tag-Along Portion with respect to which Tag-Along Rights were not exercised. (e) The DLJ Entities and any Tagging Person who exercise the Tag-Along Rights pursuant to this Section 4.01 may sell the Company Securities subject to the Tag-Along Offer on the terms and conditions set forth in the Tag-Along Notice (PROVIDED, HOWEVER, that the cash price payable in any such sale may exceed the cash price specified in the Tag-Along Notice by up to 10%) within 120 days of the date on which Tag-Along Rights shall have been waived, exercised or expired. SECTION 4.02. RIGHTS TO COMPEL PARTICIPATION IN CERTAIN TRANSFERS. (a) If (i) the DLJ Entities propose to transfer not less than 50% of their Initial Ownership of any class of Company Securities to a Third Party in a bona fide sale or (ii) the DLJ Entities propose a transfer in which the Company the Securities to be 15 transferred by the DLJ Entities and their Permitted Transferees constitute more than 50% of such class of outstanding Company Securities (a "SECTION 4.02 SALE"), the DLJ Entities may at their option require all Other Stockholders to sell the Drag-Along Portion of their Company Securities ("DRAG-ALONG RIGHTS"). DLJMB shall provide written notice of such Section 4.02 Sale to the Other Stockholders (a "SECTION 4.02 NOTICE") not later than 15 days prior to the proposed Section 4.02 Sale. The Section 4.02 Notice shall identify the proposed transferee for the Section 4.02 Sale, the number and type of Company Securities proposed to be transferred pursuant to the Section 4.02 Sale, the proposed consideration for the Company Securities (the "SECTION 4.02 SALE PRICE") and all other material terms and conditions of the proposed Section 4.02 Sale. The number of Company Securities to be sold by each Other Stockholder will be the Drag-Along Portion of the Company Securities that such Other Stockholder owns. Subject to the Sections 4.02 and 4.03, each Other Stockholder shall be required to participate in the Section 4.02 Sale on the terms and conditions set forth in the Section 4.02 Notice and to tender the Drag-Along Portion of its Company Securities as set forth below. The price payable in such transfer shall be the Section 4.02 Sale Price. Not later than the 10th day following the date of the Section 4.02 Notice (the "SECTION 4.02 NOTICE PERIOD"), each to the Other Stockholders shall deliver to a representative of DLJMB designated in the Section 4.02 Notice certificates representing the Drag Along Portion of such Other Stockholder's Company Securities, duly endorsed, together with all other documents required to be executed in connection with such Section 4.02 Sale. If any Other Stockholder should fail to deliver such certificates to DLJMB, the Company shall cause the books and records of the Company to show that the Drag-Along Portion of such Other Stockholder's Company Securities are bound by the provisions of this Section 4.02 and Section 4.03 and that such Company Securities shall be transferred to the purchaser of the Company Securities subject to the Section 4.02 Sale immediately upon surrender for transfer by the holder thereof. (b) The DLJ Entities shall have a period of 90 days from the date of receipt of the Section 4.02 Notice to consummate the Section 4.02 Sale on the terms and conditions set forth in such Section 4.02 Sale Notice. If the Section 4.02 Sale shall not have been consummated during such period, DLJMB shall return to each of the Other Stockholders all certificates representing Company Securities that such Other Stockholder delivered for transfer pursuant hereto, together with any documents in the possession of DLJMB executed by the Other Stockholder in connection with such proposed Section 4.02 Sale, and all the restrictions on transfer contained in this Agreement or otherwise applicable at such time with respect to the Company Securities owned by the Other Stockholders shall again be in effect. 16 (c) Concurrently with the consummation of any Section 4.02 Sale pursuant to this Section 4.02 and Section 4.03, DLJMB shall give notice thereof to all Stockholders, shall remit to each Stockholder who has surrendered certificates in connection with such Section 4.02 Sale the total consideration (by bank or certified check) for the Company Securities represented by such Stockholder's certificates and shall furnish such other evidence of the completion and time of completion of such Section 4.02 Sale and the terms thereof as may be reasonably requested by such Stockholders. SECTION 4.03. CERTAIN RIGHTS. It is understood and agreed that the employment agreements or associated restricted stock purchase agreements between one or more Management Stockholders and the Company or any Subsidiary may contain provisions permitting or requiring, under certain circumstances, such Management Stockholders to sell to the Company or a Subsidiary, and permitting or requiring, under certain circumstances, the Company or such Subsidiary to purchase from such Management Stockholder, Common Shares. Such provisions may, by the terms of such agreements, remain effective notwithstanding that the employment relationship created by such employment agreements has been terminated, in which event such provisions are deemed to be incorporated herein and made a part hereof, to the extent appropriate. ARTICLE 5 REGISTRATION RIGHTS SECTION 5.01. DEMAND REGISTRATION. (a) If the Company shall receive a written request by the DLJ Entities or their Permitted Transferees (any such requesting Person, a "SELLING STOCKHOLDER") that the Company effect the registration under the Securities Act of all or a portion of such Selling Stockholder's Registrable Securities, and specifying the intended method of disposition thereof, then the Company shall promptly give written notice of such requested registration (a "DEMAND REGISTRATION") at least 10 days prior to the anticipated filing date of the registration statement relating to such Demand Registration to the Other Stockholders and thereupon will use its best efforts to effect, as expeditiously as possible, the registration under the Securities Act of: (i) the Registrable Securities then held by the Selling Stockholders which the Company has been so requested to register by the Selling Stockholders; and 17 (ii) subject to the restrictions set forth in Section 3.04, all other Registrable Securities of the same type as that to which the request by the Selling Stockholders relates which any Other Stockholder entitled to request the Company to effect an Incidental Registration (as such term is defined in Section 5.02) pursuant to Section 5.02 (all such Stockholders, together with the Selling Stockholders, the "HOLDERS") has requested the Company to register by written request received by the Company within 5 days after the receipt by such Holders of such written notice given by the Company, all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; PROVIDED that, subject to Section 5.01(d) hereof, the Company shall not be obligated to effect more than six Demand Registrations for the DLJ Entities; PROVIDED, FURTHER, that the Company shall not be obligated to effect a Demand Registration unless the aggregate proceeds expected to be received from the sale of the Common Stock to be included in such Demand Registration, in the reasonable opinion of DLJMB exercised in good faith, equal or exceed (x) $25,000,000 if such Demand Registration would constitute the First Public Offering, or (y) $10,000,000 in all other cases. In no event will the Company be required to effect more than one Demand Registration within any four-month period. (b) Promptly after the expiration of the 5-day period referred to in Section 5.01(a)(ii) hereof, the Company will notify all the Holders to be included in the Demand Registration of the other Holders and the number of Registrable Securities requested to be included therein. The Selling Stockholders requesting a registration under this Section may, at any time prior to the effective date of the registration statement relating to such registration, revoke such request, without liability to any of the other Holders, by providing a written notice to the Company revoking such request, in which case such request, so revoked, shall be considered a Demand Registration unless the participating Stockholders reimburse the Company for all costs incurred by the Company in connection with such registration or unless such revocation arose out of the fault of the Company. (c) The Company will pay all Registration Expenses in connection with any Demand Registration. (d) A registration requested pursuant to this Section shall not be deemed to have been effected unless the registration statement relating thereto (A) has become effective under the Securities Act and (B) has remained effective for a period of at least 180 days (or such shorter period in which all Registrable Securities of the Holders included in such registration have actually been sold 18 thereunder); PROVIDED that if (i) after any registration statement requested pursuant to this Section becomes effective (x) such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court and (y) less than 75% of the Registrable Securities included in such registration statement is sold thereunder, or (ii) the Maximum Offering Size (as defined below) is reduced in accordance with Section 5.01(e) such that less than 66 2/3% of the Registrable Securities of the Selling Stockholders sought to be included in such registration are included, such registration statement shall be at the sole expense of the Company and shall not be considered a Demand Registration. (e) If a Demand Registration involves an Underwritten Public Offering and the managing underwriter shall advise the Company and the Selling Stockholders that, in its view, (i) the and/or type number of Registrable Securities requested to be included in such registration (including any securities which the Company proposes to be included which are not Registrable Securities) or (ii) the inclusion of some or all of the Registrable Securities owned by the Holders, in any such case, exceeds the largest number and/or type of securities which can be sold without having an adverse effect on such offering, including the price at which such securities can be sold (the "MAXIMUM OFFERING SIZE"), the Company will include in such registration, in the priority listed below, up to the Maximum Offering Size: (A) first, all Registrable Securities requested to be registered by the Selling Stockholders (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the relative number of shares of Registrable Securities so requested to be registered); (B) second, all Registrable Securities requested to be included in such registration by any other Holder and their Permitted Transferees (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Holders on the basis of the relative number of shares of Registrable Securities so requested to be included); and (C) third, any securities proposed to be registered by the Company. (f) If, in connection with any Demand Registration pursuant to this Section with respect to the Common Shares or Preferred Shares, any Selling Stockholder shall seek to transfer any Warrants together with Common Shares or Preferred Shares, the Company shall at the request of any such Selling 19 Stockholder effect a registration of such Warrants to which the provisions of this Article 5 shall apply MUTATIS MUTANDIS and a registration, pursuant to a shelf registration statement, so as to permit the resale of the Common Shares for which any Warrants so transferred may be exercisable. The Company shall maintain the effectiveness of any such shelf registration statement, and take all actions necessary to permit resale of such Common Shares as may be required by applicable state securities laws. SECTION 5.02 INCIDENTAL REGISTRATION. (a) If the Company proposes to register any Company Securities under the Securities Act (other than a registration of Common Shares (A) issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or (B) in connection with a direct or indirect acquisition by the Company of another company), whether or not for sale for its own account, it will each such time, subject to the provisions of Section 5.02(b), give prompt written notice at least 10 days prior to the anticipated filing date of the registration statement relating to such registration to each DLJ Entity and each Other Stockholder, which notice shall set forth such Stockholder's rights under this Section 5.02 and shall offer such Stockholders the opportunity to include in such registration statement such number of Registrable Securities of the same type as are proposed to be registered as each such Stockholder may request (an "INCIDENTAL REGISTRATION"). Upon the written request of any such Stockholder made within 5 days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Stockholder), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by such Stockholders, to the extent requisite to permit the disposition of the Registrable Securities so to be registered; PROVIDED that (1) if such registration involves an Underwritten Public Offering, all such Stockholders requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected as provided in Section 5.04(f) on the same terms and conditions as apply to the Company and (2) if, at any time after giving written notice of its intention to register any stock pursuant to this Section 5.02(a) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to all such Stockholders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (without prejudice, however, to the rights of any DLJ Entity under Section 5.01). No registration effected under this Section 5.02 shall relieve the Company of its obligations to effect a Demand Registration to the extent required by Section 5.01. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 5.02. 20 (b) If a registration pursuant to this Section 5.02 involves an Underwritten Public Offering (other than in the case of an Underwritten Public Offering requested by a Selling Stockholder in a Demand Registration, in which case the provisions with respect to priority of inclusion in such offering set forth in Section 5.01(e) shall apply) and the managing underwriter advises the Company that, in its view, the number and/or type of shares of Registrable Securities which the Company and the Other Stockholders intend to include in such registration exceeds the Maximum Offering Size, the Company will include in such registration, in the priority listed below, up to the Maximum Offering Size: (i) first, so much of the securities proposed to be registered for the account of the Company as would not cause the offering to exceed the Maximum Offering Size; and (ii) second, all Registrable Securities requested to be included in such registration pursuant to Section 5.02 (allocated, if necessary for the offering not to exceed the Maximum Offering Size, pro rata among such Stockholders on the basis of the relative number of shares of Registrable Securities requested to be so included). SECTION 5.03. HOLDBACK AGREEMENTS. If any registration of Registrable Securities shall be in connection with an Underwritten Public Offering, each Stockholder agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144, or any successor provision, under the Securities Act, of any Registrable Securities, and not to effect any such public sale or distribution of any Common Shares or of any stock convertible into or exchangeable or exercisable for any Common Shares (in each case, other than as part of such Underwritten Public Offering) during the 14 days prior to the effective date of such registration statement (except as part of such registration) or during the period after such effective date equal to the lesser of (i) such period of time as agreed between such managing underwriter and the Company and (ii) 180 days (such lesser period, the "APPLICABLE HOLDBACK PERIOD"). SECTION 5.04. REGISTRATION PROCEDURES. Whenever Stockholders request that any Registrable Securities be registered pursuant to Section 5.01 or 5.02, the Company will, subject to the provisions of such Sections, use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company will as expeditiously as possible prepare and file with the SEC a registration statement on any form for which the Company then 21 qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its best efforts to cause such filed registration statement to become and remain effective for a period of not less than 180 days. (b) The Company will, if requested, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to each Stockholder holding Registrable Securities covered by such registration statement and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement as proposed to be filed, and thereafter the Company will furnish to such Stockholder and underwriter, if any, such number to copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Stockholder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Stockholder. (c) After the filing of the registration statement, the Company will promptly notify each Stockholder holding Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (d) The Company will use its best efforts to (i) register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions in the United States as any Stockholder holding such Registrable Securities reasonably (in light of such Stockholder's intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Stockholder to consummate the disposition of the Registrable Securities owned by such Stockholder; PROVIDED that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d),(B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (c) The Company will immediately notify each Stockholder holding such Registrable Securities, at any time when a prospectus relating thereto is 22 required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly prepare and make available to each such Stockholder any such supplement or amendment. (f) (i) The DLJ Entities will have the right, in their sole discretion, to select an underwriter or underwriters in connection with any Public Offering resulting from the exercise by any such DLJ Entity or its Permitted Transferee of a Demand Registration, which underwriter or underwriters may include any Affiliate of any DLJ Entity and (ii) the Company will select an underwriter or underwriters in connection with any other Public Offering. In connection with any Public Offering, the Company will enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities in any such Public Offering, including the engagement of a "qualified independent underwriter" in connection with the qualification of the underwriting arrangements with the NASD. (g) Upon the execution of confidentiality agreements in form and substance satisfactory to the Company, the Company will make available for inspection by any Stockholder and any underwriter participating in any disposition pursuant to a registration statement being filed by the Company pursuant to this Section 5.04 and any attorney, accountant or other professional retained by any such Stockholder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. Each Stockholder agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the Company Securities or its Affiliates unless and until such is made generally available to the public. Each Stockholder further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company 23 and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential. (h) The Company will furnish to each such Stockholder and to each such underwriter, if any, a signed counterpart, addressed to such underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as a majority of such Stockholders or the managing underwriter therefor reasonably requests. (i) The Company will otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its stockholders, as soon as reasonably practicable, an earnings statement covering a period of 12 months, beginning within three months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. The Company may require each such Stockholder to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration. Each such Stockholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5.04(e), such Stockholder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Stockholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5.04(e), and, if so directed by the Company, such Stockholder will deliver to the Company all copies, other than any permanent file copies then in such Stockholder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event that the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective (including the period referred to in Section 5.04(a)) by the number of days during the period from and including the date of the giving of notice pursuant to Section 5.04(e) to the date when the Company shall make available to such Stockholder a prospectus supplemented or amended to conform with the requirements of Section 5.04(e). SECTION 5.05. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Stockholder holding Registrable Securities 24 covered by a registration statement, its officers, directors and agents, and each person, if any, who controls such Stockholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by such Stockholder or on such Stockholder's behalf expressly for use therein; PROVIDED that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any such loss, claim, damage, liability or expense results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such person if it is determined that the Company has provided such prospectus and it was the responsibility of such Stockholder to provide such person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The Company also agrees to indemnify any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Stockholders provided in this Section 5.05. SECTION 5.06. INDEMNIFICATION BY PARTICIPATING STOCKHOLDERS. Each Stockholder holding Registrable Securities included in any registration statement agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, directors and agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Stockholder, but only (i) with respect to information furnished in writing by such Stockholder or on such Stockholder's behalf expressly for use in any registration statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus or (ii) to the extent that any loss, claim, damage, liability or expense described in Section 5.05 25 results from the fact that a current copy of the prospectus (or, in the case of a prospectus, the prospectus as amended or supplemented) was not sent or given to the Person asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such Person if it is determined that it was the responsibility of such Stockholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such loss, claim, damage, liability or expense. Each such Stockholder also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 5.06. As a condition to including Registrable Securities in any registration statement filed in accordance with Article 5 hereof, the Company may require that it shall have received an undertaking reasonably satisfactory to it from any underwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities. SECTION 5.07. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to this Article 5, such Person (an "INDEMNIFIED PARTY") shall promptly notify the Person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses; PROVIDED that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred. In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties. The Indemnifying 26 Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such proceeding. SECTION 5.08. CONTRIBUTION. If the indemnification provided for in this Article 5 is unavailable to the Indemnified Parties in respect of any losses, claims, damages or liabilities referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) as between the Company and the Stockholders holding a Registrable Securities covered by a registration statement on the one hand and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and such Stockholders on the one hand and the underwriters on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and such Stockholders on the one hand and of such underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations and (ii) as between the Company on the one hand and each such Stockholder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such Stockholder in connection with such statements or omissions, as well as any other relevant equitable considerations. The relative benefits received by the Company and such Stockholders on the one hand and such underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and such Stockholders bear to the total underwriting discounts and commissions received by such underwriters, in each case as set forth in the table on the cover page of the prospectus. The relative fault of the Company and such Stockholders on the one hand and of such underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and such Stockholders or by such underwriters. The relative fault of the Company on the one hand and of each such 27 Stockholder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Stockholders agree that it would not be just and equitable if contribution pursuant to this Section 5.08 were determined by pro rata allocation (even if the underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5.08, no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no Stockholder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Stockholder were offered to the public exceeds the amount of any damages which such Stockholder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each such Stockholder's obligation to contribute pursuant to this Seton 5.08 is several in the proportion that the proceeds of the offering received by such Stockholder bears to the total proceeds of the offering received by all such Stockholders and not joint. SECTION 5.09. PARTICIPATION IN PUBLIC OFFERING. No Person may participate in any Public Offering hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) complete and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and the provisions of this Agreement in respect of registration rights. 28 SECTION 5.10. OTHER INDEMNIFICATION. Indemnification similar to that specified herein (with appropriate modifications) shall be given by the Company and each Stockholder participating therein with respect to any required registration to other qualification of securities under any federal or state law or regulation or governmental authority other than the Securities Act. SECTION 5.11. COOPERATION BY THE COMPANY. In the event any Stockholder shall transfer any Registrable Securities pursuant to Rule 144A under the Securities Act, the Company shall cooperate, to the extent commercially reasonable, with such Stockholder and shall provide to such Stockholder such information as such Stockholder shall reasonably request. ARTICLE 6 MISCELLANEOUS SECTION 6.01. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. SECTION 6.02. BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Agreement, expressed or implied, shall confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 6.03. EXCLUSIVE FINANCIAL AND INVESTMENT BANKING ADVISOR. During the period from and including the date hereof through and including the fifth anniversary of the date hereof, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), or any Affiliate of DLJSC that the DLJ Entities may choose in their sole discretion, shall be engaged as the exclusive financial and investment banking advisor of the Company. DLJSC or such Affiliate shall be entitled to reimbursement from the Company for all expenses incurred by DLJSC or such Affiliate (including, without limitation, fees and expenses of counsel) as financial and investment banking advisor of the Company. SECTION 6.04. ASSIGNABILITY. This Agreement shall not be assignable by any party hereto, except that any Person acquiring Shares who is required by the 29 terms of this Agreement or any employment agreement or stock purchase, option, stock option or other compensation plan of the Company or any Subsidiary to become a party hereto shall (unless already bound hereby) execute and deliver to the Company an agreement to be bound by this Agreement and shall thenceforth be a "STOCKHOLDER". Any Stockholder who ceases to own beneficially any Shares shall cease to be bound by the terms hereof (other than the provisions of Sections 5.05, 5.06, 5.07, 5.08, and 5.10 applicable to such Stockholder with respect to any offering of Registrable Securities completed before the date such Stockholder ceased to own any Shares). SECTION 6.05. AMENDMENT; WAIVER; TERMINATION. No provision of this Agreement may be waived except by an instrument in writing executed by the party against whom the waiver is to be effective. No provision of this Agreement may be amended or otherwise modified except by an instrument in writing executed by the Company with the approval of the Board and Stockholders holding at least 75% of the outstanding Shares. SECTION 6.06. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmissions and shall be given, if to the Company, to: DeCrane Holdings Co. 2361 Rosecrans Avenue Suite 180 El Segundo, CA 90245 Attention: R. Jack DeCrane Fax: (310) 643-0746 if to the DLJ Entities, to: DLJ Merchant Banking Partners II, L.P. 277 Park Avenue New York, New York 10172 Attention: Thompson Dean Fax: (212) 892-7272 30 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: George R. Bason, Jr., Esq. Fax: (212) 450-4800 All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a business day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding business day in the place of receipt. Any notice, request or other written communication sent by facsimile transmission shall be confirmed by certified mail, return receipt requested, posted within one Business Day, or by personal delivery, whether courier or otherwise, made within two Business Days after the date of such facsimile transmission. Any Person who becomes a Stockholder shall provide its address and fax number to the Company, which shall provide such information to each other Stockholder. SECTION 6.07. HEADINGS. The headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. SECTION 6.08. COUNTERPARTS. This Agreement may be executed in any number of counterparts,each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. SECTION 6.09. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW RULES OF SUCH STATE. SECTION 6.10. SPECIFIC ENFORCEMENT. Each party hereto acknowledges that the remedies at law of the other parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies which may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available. 31 SECTION 6.11. CONSENT TO JURISDICTION. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Southern District of New York or any other New York State Court sitting in New York City, and each of the parties hereby consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court, or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 6.06 shall be deemed effective service of process on such party. 32 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. DECRANE HOLDINGS CO. By: _______________________________ Name: Title: DLJ MERCHANT BANKING PARTNERS II, L.P. BY DLJ MERCHANT BANKING II, INC. Managing General Partner By: _______________________________ Name: Title: DLJ MERCHANT BANKING PARTNERS II-A, L.P. BY DLJ MERCHANT BANKING II, INC., Managing General Partner By: _______________________________ Name: Title: DLJ OFFSHORE PARTNERS II, C.V. BY DLJ MERCHANT BANKING II, INC., Advisory General Partner By: _______________________________ Name: Title: DLJ DIVERSIFIED PARTNERS, L.P. BY DLJ DIVERSIFIED PARTNERS, INC., Managing General Partner By: _______________________________ Name: Title: DLJ DIVERSIFIED PARTNERS-A, L.P. BY DLJ DIVERSIFIED PARTNERS, INC., Managing General Partner By: _______________________________ Name: Title: DLJMB FUNDING II, INC. By: _______________________________ Name: Title: DLJ EAB PARTNERS, L.P. BY DLJ LBO PLANS MANAGEMENT CORPORATION, General Partner By: _______________________________ Name: Title: DLJ MILLENNIUM PARTNERS, L.P. BY DLJ MERCHANT BANKING II, INC., Managing General Partner By: _______________________________ Name: Title: UK INVESTMENT PLAN 1997 PARTNERS DONALDSON, LUFKIN & JENRETTE, INC., General Partner By: _______________________________ Name: Title: DLJ FIRST ESC L.P. BY DLJ LBO PLANS MANAGEMENT CORPORATION, as General Partner By: _______________________________ Name: Title: DLJ ESC II L.P. BY DLJ LBO PLANS MANAGEMENT CORPORATION, as General Partner By: _______________________________ Name: Title: DLJ MILLENNIUM PARTNERS-A, L.P. BY DLJ MERCHANT BANKING II, INC., Managing General Partner By: _______________________________ Name: Title: EX-10.5 39 EX-10.5 10.2 TAX SHARING AGREEMENT, DATED MARCH 15, 1993, BY AND AMONG D.A.H., INC., TSH AND HOLLINGSEAD INTERNATIONAL, INC. TAX SHARING AGREEMENT between DeCRANE AIRCRAFT HOLDINGS, INC. and ITS SUBSIDIARY CORPORATIONS Agreement dated March 15, 1993 by and among D.A.H., Inc. ("Parent") and each of its undersigned subsidiaries: WITNESSETH WHEREAS, the parties hereto are members of an affiliated group ("Affiliated Group") as defined in Section 1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, such Affiliated Group has filed a U.S. consolidated income tax return for its taxable year ended August 31, 1991 and is required to file consolidated income tax returns for subsequent years; and WHEREAS, it is the intent and desire of the parties hereto that a method be established for allocating the consolidated income tax liability of the Affiliated Group among its members, for: - Reimbursing the Parent for payment of such tax liability; - Establishing payables/receivables among members arising from the use of one member's losses or tax credits by other member(s) and defining the circumstances under which cash is to be exchanged, and; - Providing for the allocation and payment of any refund arising from a carryback of losses or tax credits from subsequent taxable years; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto agree as follows: 1. CONSENT TO FILE CONSOLIDATED TAX RETURN A U.S. consolidated income tax return has been filed by the Parent for the taxable year ended August 31, 1991 and shall be filed for each subsequent taxable period in respect of which this agreement is in effect and for which the Affiliated Group is required or permitted to file a consolidated tax return. Each subsidiary shall execute and file such consent, elections, and other documents that may be required or appropriate for the proper filing of such return. 2. RESPONSIBILITY FOR PAYMENT OF CONSOLIDATED TAX LIABILITY If, in any taxable year, there is a consolidated tax liability, the Parent shall be responsible for the payment to the Internal Revenue Service of the consolidated tax liability. 3. METHOD OF ALLOCATION OF CONSOLIDATED TAX LIABILITY (a) The Parent and each Subsidiary agree that the consolidated tax liability for each year shall be apportioned among them in accordance with the provisions of Regulation Section 1.1552-1(a)(2) for tax return purposes. Regulation Section 1.1552-1(a)(2) requires the consolidated tax liability of the group to be allocated among the members of the Affiliated Group on the basis of the percentage of the total tax which the tax of such member, if computed on a separate return basis, would bear to the total amount of the tax for all members computed on a separate return basis. (b) In addition, for financial statement ("book") purposes, the Parent and each Subsidiary agree to the immediate allocation of 100% of the tax benefits utilized to those members who generated the benefits. In determining the amount of tax benefits utilized, all profitable members will establish a Tax Payable account in an amount which equals their separate return liability (as defined under Section 4), and all loss members establish a Tax Receivable account in a corresponding amount. In any year in which the total amount of tax benefits utilized by the profitable members of the Affiliated Group are less than the total amount of tax benefits available, the losses and credits of each member that has generated such tax benefits will be deemed to be utilized in the same proportion as such member's cumulative tax benefits bear to the total cumulative tax benefits of all members. (c) Each member of the group shall maintain a record of their tax liability computed on a separate return basis for each year this agreement is in effect for purposes of making the calculations under Section 3(a) and (b). (d) If a member of the affiliated group is: (1) merged into another member of the affiliated group, or (2) liquidated into another member of the affiliated group, then the successor corporation will assume any liability or succeed to any benefit that the dissolving member would be obligated or entitled to under Sections 3(a) and (b) if it had not been merged or liquidated. 4. DETERMINATION OF SEPARATE RETURN LIABILITY (a) The term "separate tax liability" of each member, as it is used in Section 3(b), means the amount of tax it would owe for each period in which it is a member of the Affiliated Group, computed as if it had filed a separate return for each period, adjusted as follows: - 2 - (1) No surtax exemption will be allowed, and (2) Net operating losses, tax credits (including the alternative minimum tax credit) and other items which, under the Code, could have been carried forward or back by a member if it were filing a separate return shall be included in computing its tax liability provided such attributes were generated in a period in which it was a member of the Affiliated Group and have not been deemed to be utilized by another member under Section 3(b). 5. PAYMENT AMONG MEMBERS (a) Each subsidiary shall pay to the Parent its share of tax liability allocated under Section 3(a) UPON DEMAND FOR such payment from the Parent. (b) The only circumstances in which cash will be exchanged between the subsidiaries with respect to the Tax Receivables/Payables established pursuant to Section 3(b) are as follows: (1) A previously non-profitable subsidiary AND the Affiliated Group become profitable, or (2) A subsidiary is sold. Payments to members for benefits surrendered and utilized under Section 3(b), will be paid UPON MEETING the conditions set forth in either (1) or (2) above. (c) No interest will either accrue or be paid on the balances due from one member to another which are attributable to Tax Payables/Receivables arising under Section 3(b). 6. ESTIMATED TAX PAYMENTS In the event the Affiliated Group is required to make quarterly estimated tax payments, each subsidiary shall pay to the Parent its share of each payment, as determined by the Parent, UPON receiving notice from the Parent. Any amount paid by a subsidiary will be included in determining the payments due under Section 5. Any overpayments of estimated tax will be refunded to the subsidiary. 7. TERMINATION (a) This agreement shall terminate with respect to any subsidiary on the happening of any of the following events: - 3 - (1) If the Parent and such subsidiary agree, in writing, to terminate this agreement, or; (2) Notwithstanding Section 3(d), if such subsidiary ceases to be a member of the Affiliated Group. (b) For purposes of this agreement, any subsidiary which is required to recognize income or recapture credits as a result of an election made or deemed to be made under IRC Section 338 shall be treated as if such income or recaptured credits were generated after such subsidiary ceased being a member of the affiliated group. 8. SUBSEQUENT ADJUSTMENTS If the consolidated tax liability is adjusted for any taxable period, whether by means of an amended return claim for refund or after a tax audit by the Internal Revenue Service, the liability of each member shall be recomputed to give effect to such adjustments, and in the case of a refund, the Parent shall make payment to each member for its share of the refund, determined in the same manner as in Section 3 above, AS SOON AS THE refund is received by the Parent. In the case of an increase in tax liability, each member shall pay to the Parent its allocable share of such increased tax liability under Section 3(a) after receiving notice of such liability from the Parent and recompute any Tax Receivables/Payables required under Section 3(b) as well as payments required under Section 5(b) based upon the adjusted separate return liabilities of the members of the group. 9. NEW MEMBERS OF THE AFFILIATED GROUP If, during a consolidated return period, the Parent or any subsidiary acquires or organizes another corporation that is required to be included in the consolidated return, then such corporation shall join in and be bound by this agreement. 10. EFFECTIVE DATES This agreement shall apply to the taxable year ending August 31, 1991 and all subsequent taxable periods unless the Parent and the subsidiaries agree to terminate the agreement. Notwithstanding such termination, this agreement shall continue in effect with respect to any payment or refund due for all taxable periods prior to termination. 11. MISCELLANEOUS PROVISIONS This agreement shall be binding upon and inure to the benefits of any successor, whether by statutory merger, acquisition of assets or otherwise, to any of the parties hereto, to the same extent as if the successor had been an original party to the agreement. - 4 - For the purposes of this section, the term "successor" shall include the direct parent corporation of a subsidiary corporation that dissolves without distributing any net assets to the direct parent. IN WITNESS THEREOF, the parties hereto have caused this agreement to be executed by their duly authorized representatives on March 15, 1993. D.A.H., INC. TRI-STAR HOLDINGS, INC. /s/ R. Jack DeCrane /s/ Robert Rankin - ------------------------------ ----------------------------------- HOLLINGSEAD INTERNATIONAL, INC. /s/ R. Jack DeCrane ----------------------------------- - 5 - EX-10.6 40 EXHIBIT 10.6 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is made and entered into July 17, 1998 by and between DeCrane Aircraft Holdings, Inc. (the "Company") and R. Jack DeCrane ("Executive") based on the following facts: A. Executive is currently employed by the Company in the capacity as Chief Executive Officer ("CEO") and is a key executive of the Company. B. The Company desires to employ Executive for the term of this Agreement on the terms and conditions specified in this Agreement; Executive desires to be employed and to perform the services described herein pursuant to the terms of this Agreement. C. The Compensation Committee of the Board of Directors (the "Committee") has recommended that Executive be employed pursuant to the terms of this Agreement and the Board of Directors of the Company (the "Board") has approved the recommendation of the Committee. Based on the foregoing facts and circumstances and for good and valuable consideration, receipt of which is hereby acknowledged, the Company and Executive agree as follows: 1. TERM OF AGREEMENT. Except as otherwise provided herein, the term of this Agreement shall commence effective July 1, 1998 and shall continue through June 30, 2001 (the "Term"). 2. DUTIES. Executive agrees to be employed as the CEO of the Company during the Term and to devote his full business time and attention to the Company. Executive may devote such of his time as reasonable to his personal investments and to civic and/or charitable activities. Executive may serve as a director or trustee of any other corporation or trust with the consent of the Board, which consent will not unreasonably be withheld. Executive's duties shall not be diminished, nor will the responsibilities be decreased from those currently in effect. The Company will not assign duties to the CEO inconsistent with those attendant to the position of a Chief Executive Officer and a director of the Company. Except as specified by the terms of this Agreement, the powers and duties of Executive may be more specifically determined by the Board from time to time. 1 3. COMPENSATION. During the Term, Executive shall receive the following compensation and benefits: A. SALARY. During the first year of the Term, the Company shall pay Executive an annual base salary of $310,000 payable on the regular payroll dates for employees of the Company; for each subsequent year during the Term, Company shall pay Executive an annual salary in an amount at least equal to the sum of (i) Executive's annual base salary for the preceding year, plus (ii) an additional amount as favorable to Executive as pay increases paid by the Company for other executives of the Company; B. BONUS. During the Term, the Company shall pay Executive bonus payments annually (said bonus payments, together with Executive's salary as provided in Section 3.A., being sometimes collectively referred to herein as "Compensation"), as a percentage of his annual base salary in effect at the time of the payment of such bonus payment based upon the Company's achievement of mutually agreed performance goals as set forth in the Company's operation plan approved by the Board for such year. For the calendar year 1998, the bonus payment shall be based upon the Company's achievement of earnings before taxes, depreciation and amortization ("EBITDA") as specified in Executive's Employment Agreement dated September 1, 1994 (the 1994 Employment Agreement) and at the percentages specified in the chart below; provided, however, no portion of the bonus shall be based upon EBITDA of any business for any period prior to the date such business was acquired by the Company. During each subsequent year during the Term, the bonus payments shall be based upon the Company's achievement of earnings per share ("EPS") as determined pursuant to generally accepted accounting principles ("GAAP") consistently applied and followed in connection with the preparation of the Company's audited financial statements, as follows:
Level of Achievement as a Bonus as a Percentage of Percentage of Performance Goal Annual Base Salary EPS equals 80% 55% EPS equals 90% 65% EPS equals 100% 75% EPS equals 110% 85% EPS equals 120% 100%
2 Said bonus shall be deemed earned on a pro rata basis throughout the year; C. INCENTIVE STOCK OPTIONS. Pursuant to the Company 1993 Share Incentive Plan (the "Plan"), the Company shall from time to time make awards to Executive and Executive shall receive options to purchase shares of the Company's Common Stock subject to the terms of the Plan. The Executive is hereby awarded options to purchase 50,000 shares at the Designated Current Price, specified below (the "1998 Award"). As used herein, "Designated Current Price" means the closing price of the Company's Common Stock on the Nasdaq National Market on July 16, 1998 as notified to the Holder by the Company in a separate writing, based upon the price therefor as reported in the Wall Street Journal issue dated July 17, 1998. Subject to earlier vesting as provided in the Option Agreement, the options granted pursuant to this Section 3.C. shall vest 1/2 on July 31, 1998, and 1/2 on July 31, 1999; D. AVTECH BONUS. In consideration for the services performed by Executive in the Company's acquisition of Avtech Corporation on June 26, 1998, Company shall concurrent with the execution of this Agreement pay to Executive $500,000. E. EXECUTION BONUS. To induce Executive to enter into this Employment Agreement, Company shall concurrent with the execution of this Agreement, pay Executive $250,000. F. CONTINUATION BONUS. So long as Executive is employed by the Company on January 1, 1999, Company shall pay to Executive on January 2, 1999 the sum of $150,000. G. BENEFITS. During the Term, the Company shall provide to Executive, his spouse and his eligible dependents and maintain in full force and effect throughout the Term, group insurance (including conversion features) and benefits, including life, major medical, dental, vision and the related benefits as have been provided to Executive, his spouse and his eligible dependents during the immediately preceding year (the "Health Care Benefits"). Without limiting the Health Care Benefits provided in the foregoing sentence, the Company shall provide to Executive life insurance with a death benefit of not less than $1 million. Without limiting the Health Care Benefits to be provided to Executive, the Company may provide the Health Care Benefits 3 pursuant to group insurance plans if available to the Company on such basis; H. PROFIT SHARING PLAN. The Company agrees that Executive will be a participant, on the same basis as other executives, in any profit sharing or other deferred compensation or qualified retirement plan adopted or maintained during the Term; I. TRAVEL. The Company shall reimburse or pay directly all business- related travel, entertainment and other expenses of Executive at a level of accommodation as provided to Executive during the immediately preceding year; J. VACATION. Executive shall provide Executive annually not less than four weeks of paid vacation but not less than the amount of vacation provided to employees of the Company or any of its subsidiaries with tenure equal to that of Executive. 4. TERMINATION. The Company may terminate the employment of Executive at any time with or without "Cause." Except as provided in Section 4C, in the event that the Company terminates the employment of Executive without Cause, the Company shall be obligated to pay Executive compensation and provide benefits pursuant to Sections 3.A, 3.B and 3.G. for eighteen months. Executive's right to receive Compensation and Health Care Benefits from the Company pursuant to the foregoing sentence, shall not be diminished by Executive's receipt of compensation in connection with employment by any person or entity other than the Company. In the event of termination for Cause, Executive shall not be entitled to Compensation following the last date of Executive's employment by the Company. A. FOR CAUSE. As used in this Agreement, "Cause" shall mean (i) any material act of dishonesty constituting a felony (of which Executive is convicted or pleads guilty) which results or is intended to result directly or indirectly in substantial gain or personal enrichment to Executive at the expense of the Company, or (ii) after notice of breach delivered to Executive specifying in reasonable detail and a reasonable opportunity for Executive to cure the breaches specified in the notice, the Board, acting by a two thirds vote, after a meeting held for the purpose of making such determination and after reasonable notice to Executive and an opportunity for him together with his counsel to be heard before the Board, determines, in good faith, other than for 4 reasons of physical or mental illness, Executive willfully and continually fails to substantially perform his duties pursuant to this Agreement and such failure results in demonstrable material injury the Company. The following shall not constitute Cause: (i) Executive's bad judgment or negligence, (ii) any act or omission by Executive without intent of gaining therefrom directly or indirectly a profit to which Executive was not legally entitled, (iii) any act or omission by Executive with respect to which a determination shall have been made that Executive met the applicable standard of conduct prescribed for indemnification or reimbursement of payment of expenses under the By-Laws of the Company or the laws of the State of Delaware as in effect at the time of such act or omission. B. The Company may terminate this Agreement without Cause at any time by giving Executive 90 days notice, subject to Executive's right to receive Compensation and Health Care Benefits as provided in this Section 4. C. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL. In addition to the rights and benefits accruing to Executive as otherwise described in this Agreement, in the event that (i) a Change of Control shall have occurred while Executive is employed hereunder and (ii) the Executive's employment hereunder shall be involuntarily terminated for any reason other than Cause, death or disability or Executive shall terminate his employment hereunder for Good Reason, then the Company shall make the following payments to Executive within 15 days following the date of such termination of employment (the "Termination Date") (in the case of (i) and (ii) below) and provide the following benefits to Executive after the Termination Date (in the case of (iii), (iv) (v), (vi) and (vii) below), subject in each case to any applicable payroll or other taxes required to be withheld and subject to the provisions of Section 5 relating to limitations on parachute payments: (1) The Company shall pay Executive a lump sum amount in cash equal to $1 less than three times the sum of (a) Executive's average base salary and (b) Executive's average bonus, in each case, during the five calendar years immediately preceding the Termination Date. 5 (2) The Company shall pay Executive a lump sum amount in cash equal to accrued but unpaid salary and bonus through the Termination Date, and unpaid salary with respect to any vacation days accrued but not taken as of the Termination Date. (3) The Company shall continue to provide Executive Health Care Benefits on terms no less favorable to Executive and his dependents covered thereby (including with respect to any costs borne by Executive) than the greater of (i) the coverage provided on the date of the Change of Control or (ii) the coverage provided by the Company immediately prior to the Termination Date. Such benefits shall be provided for the period beginning on the Termination Date and ending on the first to occur of (i) the date of Executive's employment (including self-employment) in a position providing substantially the same or greater benefits as Executive's assignment with the Company on the Termination Date, or (ii) the second anniversary of the Termination Date. (4) The Company shall pay to Executive a lump sum amount in cash equal to the invested portion of the Company's contributions to Executive's account under any of the Company's plans that are "qualified" under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), to which the Company makes contributions to employee accounts in effect as of the Termination Date (the "Savings Plans"), plus an amount in cash equal to two times an amount equal to the amount of the Company's annual contribution on behalf of Executive pursuant to the Savings Plans as in effect on the date of the Change of Control or the Termination Date, whichever is greater. For purposes of this Section, the Company's matching contributions to the Savings Plans shall be deemed to be at the maximum percentage contribution to which Executive could be entitled under the Savings Plans. In addition, within five days following the Termination Date, Executive shall be paid in cash an amount equal to the Company's matching contributions determined pursuant to the Savings Plans as in effect on the date of the Change of Control or the Termination Date, whichever is greater, 6 which would have accrued to the benefit of Executive had he continued his participation in, and elected to make the maximum contributions under, the Savings Plans for the period of 24 months from the Termination Date or until December 31 of the year in which Executive would reach age 65, whichever is the shorter period. The benefits received by Executive pursuant to this Section are in addition to any benefits that were vested prior to the Termination Date in accordance with the terms of the Savings Plans. (5) Within five days following the Termination Date, the Company shall pay to Executive (i) an amount in cash equal to the vested and invested amounts that have been credited to Executive's account or accounts under any deferred compensation plan that the Company maintains for its employees as of the Termination Date whether or not then vested, plus (ii) an amount equal to the total amount required to be, or actually, credited to Executive's account, including interest equivalents, for the year in which the Termination Date occurs. (6) Within five days following the Termination Date, the Company shall select and engage at Company's expense a nationally recognized executive placement firm reasonably satisfactory to Executive to provide outplacement consulting services to Executive until the first to occur of the date of Executive's employment (including self-employment) and the second anniversary of the Termination Date. (7) Notwithstanding anything set forth in this Section 4(C), if the benefits payable pursuant to this Agreement, either alone or together with other payments which the Executive has the right to receive either directly or indirectly from the Employer or any of its Affiliates, would constitute an excess parachute payment (the "Excess Payment") under Section 280G of the Code, the Executive hereby agrees that the benefit payable pursuant to this Agreement shall be reduced (but not below zero) by the amount necessary to prevent any such payments to the Executive from constituting an Excess Payment, as determined by such independent public accounting firm with a national 7 reputation as the Employer shall select. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. As used in this Agreement, "Change of Control" shall mean an event involving the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), assuming that such Schedule, Regulation and Act applied to the Company, provided that such a Change of Control shall be deemed to have occurred at such time as: (i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than an Excluded Person (as defined below)) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% or more of the combined voting power for election of members of the Board of Directors of the then outstanding voting securities of the Company or any successor of the Company, excluding any person whose beneficial ownership of securities of the Company or any successor is obtained in a merger or consolidation not included in paragraph (iii) below; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board, unless the appointment, election or nomination for election of each new member of the Board (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who were members of the Board at the beginning of the period or whose appointment, election or nomination was so approved since the beginning of such period; (iii) there is consummated any merger, consolidation or similar transaction to which the Company is a party as a result of which the persons who were equity holders of the Company immediately prior to the effective date of the merger or consolidation shall have beneficial ownership of less than 50% of the combined voting power for election of members of the Board of Directors (or equivalent) of the surviving entity or its parent following the effective date of such merger or consolidation; (iv) any sale or other disposition (or similar transaction) (in a single transaction or series of related transactions) of (x) 50% or more of the assets or earnings power of the Company or (y) business operations which generated a majority of the consolidated revenues (determined on the basis of the Company's four most recently completed fiscal quarters for which reports have been completed) of the Company and its subsidiaries immediately prior thereto, other than a sale, other disposition, or similar transaction to an Excluded Person or to an entity of which equityholders of the Company beneficially own at least 50% of the combined voting power; (v) any liquidation of the Company. For purposes of this definition of Change 8 of Control, the term "Excluded Person" shall mean and include (i) any corporation beneficially owned by shareholders of the Company in substantially the same proportion as their ownership of shares of the Company and (ii) the Company. As used in this Agreement, "Good Reason" shall mean the occurrence, following a Change of Control, of any one of the following events without Executive's consent: (i) the Company assigns Executive to any duties substantially inconsistent with his position, duties, responsibilities, status or reporting responsibility with the Company immediately prior to the Change of Control, or assigns Executive to a position that does not provide Executive with substantially the same or better compensation, status, responsibilities and duties as Executive enjoyed immediately prior to the Change of Control; (ii) the Company reduces the amount of Executive's base salary as in effect as of the date of the Change of Control or as the same may be increased thereafter from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company; (iii) the Company fails to pay Executive an annual bonus consistent with this Agreement and bonuses consistent with past practices are paid to any other senior executives of the Company; (iv) the Company modifies Executive's annual bonus attributable to the performance levels; (v) the Company changes the location at which Executive is employed by more than 50 miles from the location at which Executive is employed as of the date of this Agreement; or (vi) the Company breaches this Agreement in any material respect, including without limitation failing to obtain a succession agreement from any successor to assume and agree to perform this Agreement. D. DEATH. In the event of Executive's death, the Company shall pay to Executive's personal representative for a period of one year following the death of Executive (i) Executive's annual base salary and (ii) Executive's bonus and the Company shall provide to Executive's widow and eligible dependents Health Care Benefits for such one year period. E. DISABILITY. The Company may terminate the Executive if the Executive is unable for a period of 180 consecutive days to perform his duties as a result of being "disabled" as defined in this Section 4.E. "Disabled" shall mean (i) a determination by a physician selected by Executive and approved by the Board that Executive is suffering from total disability and (ii) the Company has given Executive 30 days notice of potential termination and within such 30 day period Executive has not returned to the full time performance of his duties. 9 5. MITIGATION. Executive is not required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement. 6. ASSIGNMENT. Neither Company nor Executive shall have the right to assign its respective rights pursuant to this Agreement. The Company shall require any proposed successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, concurrent with the execution of a definitive agreement with the Company to engage in such transaction. 7. This Agreement shall be binding on the inure to the benefit of Executive and his heirs and the Company and any permitted assignee. The Company shall not engage in any transaction, including a merger or sale of assets unless, as a condition to such transaction such successor organization assumes the obligations of the Company pursuant to this Agreement. 8. NOTICES. If to Company: DeCrane Aircraft Holdings, Inc. 2361 Rosecrans Avenue, Suite 180 El Segundo, CA 90245 Attention: Chief Financial Officer Fax: (310) 643-0746 If to Executive: R. Jack DeCrane 14020 Old Harbor Lane, Unit 208 Marina del Rey, CA 90292 Fax: (310) 822-1159 9. FACSIMILE SIGNATURES, EXECUTION AND DELIVERY. This Agreement shall be effective upon transmission of a signed facsimile by one party to the other. 10. MISCELLANEOUS. This Agreement supersedes and, except as incorporated herein, makes void any prior agreement between the parties (including but not limited to the 1994 Employment Agreement), and sets forth the entire agreement and understanding of the parties 10 hereto with respect to the matters covered hereby, except for changes in Compensation as provided in this Agreement by action of the Committee and may not otherwise be amended or modified except by written agreement executed by the Company and the Executive. This Agreement shall be governed by and construed in accordance with the laws of the State of California. The Company has retained special counsel to review this Agreement and consented to the firm of Spolin & Silverman advising Executive; this Agreement has been authorized by resolution of the Compensation Committee of the Board of Directors of the Company. This Agreement has been executed on the date specified in the first paragraph. DeCRANE AIRCRAFT HOLDINGS, INC. By: /s/ [ILLEGIBLE] ------------------------------- Authorized Signatory Executive /s/ R. Jack DeCrane ------------------------------- R. Jack DeCrane 11 EX-10.7 41 EXHIBIT 10.7 401(k) SALARY REDUCTION ---------------------- NON-STANDARDIZED ---------------------- ADOPTION AGREEMENT ---------------------- IRS Serial #D359971a Approved April 30, 1992 [LOGO] 1300 South Clinton Street Fort Wayne, IN 46801 Internal Revenue Service Department of the Treasury Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA FFN: 50337598001-007 Case: 9100610 EIN: 35-0472300 GFD: 01 Plan: 007 Letter Serial No: 0359971a Washington DC 20224 LINCOLN NATIONAL LIFE INSURANCE CO Person to Contact Mr. Wolf Telephone Number (202) 566-6421 1300 SOUTH CLINTON STREET PO BOX 2340 Refer Reply to: E:EP:Q:1 FORT WAYNE IN 46801 Date 04/30/92 Dear Applicant: In our opinion, the form of the plan identified above is acceptable under section 401 of the Internal Revenue Code for use by employers for the benefit of their employees. This opinion relates only to the acceptability of the form of the plan under the Internal Revenue Code. It is not an opinion of the effect of other Federal or local statutes. You must furnish a copy of this letter to each employer who adopts this plan. You are also required to send a copy of the approved Form of the plan, any approved amendments and related documents to each Key District Director of Internal Revenue Service in whose jurisdiction there are adopting employers. Our opinion on the acceptability of the form of the plan is not a ruling or determination as to whether an employer's plan qualifies under Code section 401(a). Therefore, an employer adopting the form of the plan should apply for a determination letter by filing an application with the Key District Director of Internal Revenue Service on Form 5307, Short Form Application for Determination for Employee Benefit Plan. If you, the sponsoring organization, have any questions concerning the IRS processing of this case, please call the above telephone number. This number is only for use of the sponsoring organization. Individual participants and/or adopting employers with questions concerning the plan should contact the sponsoring organization. The plan's adoption agreement must include the sponsoring organization's address and telephone number for inquiries by adopting employers. If you write to the IRS regarding this plan, please provide your telephone number and the most convenient time for us to call in case we need more information. Whether you call or write, please refer to the Letter Serial Number and File Folder Number shown in the heading of this letter. You should keep this letter as a permanent record. Please notify us if you modify or discontinue sponsorship of this plan. Sincerely yours, /s/ John Diveca Chief, Employee Plans Qualifications Branch THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NON-STANDARDIZED 401(k) SALARY REDUCTION PLAN AND TRUST PROTOTYPE PLAN ADOPTION AGREEMENT PLAN #007 IRS SERIAL #D359971A DATE APRIL 30, 1992 The De Crane Aircraft Holdings, Inc. oka DAH, Inc. --------------------------------------------------------------------------- (exact legal name of Employer) (hereinafter referred to as the Employer), having its principal place of business in El Segundo, California ------------------------------------------------------------------- (City) (State) hereby adopts The Lincoln National Life Insurance Company Non-Standardized 401(k) Salary Reduction Plan and Trust Prototype Plan, and further appoints as: Trustee(s), Robert A. Rankin ------------------------------------------------------------------- ------------------------------------------------------------------; Named Fiduciary*, Same ------------------------------------------------------------; Plan Administrator*, Same ------------------------------------------------------; and Agent for Legal Service of Process*, Same -----------------------------------------; * If same as Employer, write 'Same'. The Employer's Tax Year begins January 1 and ends December 31 . -------------------- -------------------- Employer Telephone Number (310) 536-0444 . ------------------------- Business Code Number (same as shown on 1120) 3725 . ------------------- Date Business Commenced December 15, 1989 . ------------------------ In connection herewith, the Employer makes the following statements and selections: This Plan shall be known as DAR Retirement Plan ----------------------------------------- (name of Employer) 401(k) Salary Reduction Plan and ----------------------------------- Trust which shall be identified by Employer I.D. # 34-1645569 ------------------- and Plan Serial # 001 (001, 002, etc. - assign sequentially). -------------- The employer maintains, or has maintained, the following qualified plans: (List all plans, including this Plan, ever maintained by the Employer starting with Plan Serial #001.) Status Plan ------ Serial # Type of Plan In Force Terminated --------- ------------ -------- ---------- 001 401(k) [X] [ ] --------- ------------------------------------ 002 [ ] [ ] --------- ------------------------------------ 003 [ ] [ ] --------- ------------------------------------ 004 [ ] [ ] --------- ------------------------------------ 005 [ ] [ ] --------- ------------------------------------ This Employer is: Sole Proprietor ---- Partnership ---- X Corporation ---- S Corporation ---- Professional Corporation ---- Non Profit Corporation [X] Yes [ ] No Is the Employer a member of a Controlled Group of Corporations, a group of businesses under common control, or an Affiliated Service Group as defined below. This question must be answered "yes" or "no". If yes, complete the rest of this section. In the case of a group of employers which constitutes a Controlled Group of Corporations, or an Affiliated Service Group [as defined in Sections 414(b) and 414(m), respectively, of the Internal Revenue Code], or which constitutes one or more trades or businesses whether or not incorporated which are under common control [as defined in Section 414(c)], all such employers shall be considered a single employer for purposes of determining plan qualification, minimum participation, benefit accrual, vesting standards, and limitations on benefits and contributions. The employers listed below are required to be aggregated with the adopting employer under Code Sections 414(b), (c), (m) or (o), and shall participate in this Plan to the extent indicated as evidenced by written resolution adopting this Plan. (If there are no affiliated employers, indicate None.) - ---- Employer Employer Participating Participation Name I.D. # Employer Effective Date -------- -------- ------------- -------------- Tri-Star Electronics International, Inc. 34-1687242 [X] Yes [ ] No - ----------------------------- ---------- -------------- Cory Components 95-3938746 [X] Yes [ ] No - ----------------------------- ---------- -------------- Hollingsead International 95-2500766 [X] Yes [ ] No - ----------------------------- ---------- -------------- - ----------------------------- ---------- -------------- - ----------------------------- ---------- -------------- If this Plan and Trust is adopted by more than one member of the aggregation group, this Plan [X] (a) shall be administered as one plan (i.e., contributions, and forfeitures shall not be separated for each participating Employer). [ ] (b) shall be administered as a single employer plan for each participating Employer [i.e., contributions shall be made by each Employer only for those Participants employed by such Employer and forfeitures shall be used to reduce the contribution made by the applicable Employer - each asset pool shall be considered a separate plan which must independently satisfy Code Section 401(a) (26)]. [ ] (c) N/A 2 Any Employee of a participating Employer must receive credit for service while employed by any member of the aggregation group (including non-participating employers) for purposes of vesting and eligibility under this Plan from the date such Employer became a member of the aggregation group. A-1.22 The adoption of this Plan constitutes: (check appropriate statement and provide information) [ ] (a) The initial adoption of this Plan and Trust by the Employer. The Effective Date of this Plan is -------------- -----------------------------------------. (month/day/year) [X] (b) An [X] amendment and restatement, or [ ] merger of the following Plan(s) known as DAH Retirement Plan , ------------------------------ --------------------------------------------------------- --------------------------------------------------------- (name of Plans and Trusts) with the original effective date(s) of January 1, 1993 --------------------------------------------------------- (month/day/year) The effective date of this amendment and restatement is January 1, 1996 --------------------------------------------------------- (month/day/year) I. DEFINITIONS A-1.38 Hours of Service: Hours of Service shall be determined on the basis of the method selected below. The method selected shall be applied to all Employees. If the Elapsed Time Method is selected in A-1.74, Hours of Service as designated below shall be applicable for eligibility purposes only. (Select one) [X] (a) On the basis of actual hours for which an Employee is paid or entitled to payment. [ ] (b) On the basis of days worked. An Employee shall be credited with ten (10) Hours of Service if, under Section 1.38 of the Plan, such Employee would be credited with at least one (1) Hour of Service during such day. [ ] (c) On the basis of weeks worked. An Employee shall be credited with 45 Hours of Service if, under Section 1.38 of the Plan, such Employee would be credited with at least one (1) Hour of Service during such week. 3 [ ] (d) On the basis of semi-monthly payroll periods. An Employee shall be credited with 95 Hours of Service if, under Section 1.38 of the Plan, such Employee would be credited with at least one (1) Hour of Service during such semi-monthly period. [ ] (e) On the basis of months worked. An Employee shall be credited with 190 Hours of Service if under Section 1.38 of the Plan such Employee would be credited with at least one (1) Hour of Service during such month. A-1.54 Plan Year: (Select one and complete) [X] (a) Shall be the consecutive 12 month period for which records for this Plan shall be maintained beginning each January 1 and ending each December 31. [ ] (b) There shall be a short Plan Year beginning and ending . (The Plan must retain its qualified status during this period.) All subsequent Plan Years shall begin each and end each . The previous Plan Year prior to this amendment began and ended each . Adjustments for eligibility and vesting shall be made as required by Section 11.04 if the Plan Year is changed. A-1.55 For purposes of establishing Present Value to compute the Top-Heavy Ratio, any benefit (under a Defined Benefit Plan) shall be discounted for mortality and interest based on the following: (If the Employer maintains a Defined Benefit plan, this section must be completed.) Interest Rate % Mortality Table [X] N/A The Employer has no Defined Benefit plan. A-1.64 Years of Service with predecessor employer: Years of Service with , for whom this Employer does not maintain a predecessor plan shall be considered under the Plan for purposes of: (select as desired) [ ] (a) Vesting [ ] (b) Eligibility [X] (c) None of the above A-1.71 For purposes of computing the Top-Heavy Ratio, the Valuation Date shall be 12-31 of each year. 4 A-1.73 Vesting Years of Service: Years of Service credited for vesting shall exclude the years checked below subject to Section 11.03: (select as desired) [ ] (a) Years of Service before the Employee's (cannot exceed 18) birthday. (If Regular Method is used, the Plan Year in which the Employee attains age 18 shall not be excluded.) [ ] (b) Years of Service prior to the original Effective Date of this Plan or a predecessor plan. [ ] (c) Years of Service prior to . (Date selected may not be later than the original effective date of this Plan or a predecessor plan.) [ ] (d) Years of Service during a period for which the Employee declined to contribute to a plan requiring Employee Contributions. In the case of a plan using the elapsed time method, the Service which shall be disregarded is the period with respect to which the mandatory contribution is not made. [X] (e) No exclusions. Note: In general, a predecessor plan is a plan which terminates within the five (5) year period immediately preceding or following the establishment of this Plan. A-1.74 Years of Service shall be computed under the following method: (select one) [X] (a) Regular Method--based on Hours of Service credited under the method selected in A-1.38. [ ] (b) Elapsed Time Method--based on total time an Employee is employed without regard to actual hours credited as explained in Section 1.74 of this Plan. II. ELIGIBILITY A-2.01 (a) For purposes of plan coverage and benefits, employees of affiliated employers required to be aggregated with the Employer under Section 414(b), (c), (m) or (o) of the Code shall NOT be treated as Employees of the Employer unless such affiliated employers are identified as Participating Employers on page 2 of this Adoption Agreement. For purposes of plan coverage and benefits, the term "Employee" [ ] (1) shall include [X] (2) shall not include [ ] (3) N/A (Employer has no "leased employees.") "leased employees" who are required to be considered employees of the Employer under Code Section 414(n) or (o). 5 (b) The following classes of Employees of the Employer shall be eligible to participate in the Plan: [X] (1) All Employees [ ] (2) Hourly paid Employees [ ] (3) Salaried Employees [ ] (4) All Employees except Employees included in a unit of Employees covered by a collective bargaining agreement between the Employer and Employee representatives, if retirement benefits were the subject of good faith bargaining and if two percent or less of the Employees of the Employer who are covered pursuant to that agreement are professionals as defined in Section 1.410(b)-9(g) of the Regulations. For this purpose, the term "employee representatives" does not include any organization more than half of whose members are Employees who are owners, officers, or executives of the Employer. [ ] (5) Other ------------------------------------------- ------------------------------------------- The above classes of Employees [ ] (6) shall [X] (7) shall not include Employees who are non-resident aliens [within the meaning of Section 7701(b)(1)(B)] and who receive no earned income (within the meaning of Section 911(d)(2)] from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3)]. (c) Minimum age and service requirements: (select one) [X] (1) An Employee shall become a Participant on the Entry Date coincident with or next following Age 21 (cannot exceed 21) and the completion of 3 MOS. (cannot exceed 1 year) Eligibility Year of Service. MUST HAVE AT LEAST 2 ENTRY DATES, I.E., CANNOT ELECT (e)(1) BELOW. If the Eligibility Year of Service includes a fractional year, an Employee shall not be required to complete any specified number of Hours of Service to receive credit for such fractional year. [X] (2) An Employee shall become a Participant on the Entry Date coincident with or next following Age _____ (cannot exceed 20 1/2) and the completion of _____ [cannot exceed 1/2 year (6 months)] Eligibility Year of Service. USE THIS PROVISION ONLY WHEN (e)(1) (ONE ENTRY DATE) IS ELECTED BELOW. 6 If the Eligibility Year of Service includes a fractional year, an Employee shall not be required to complete any specified number of Hours of Service to receive credit for such fractional year. (d) The preceding election in A-2.01(o) notwithstanding, Employees who are actively employed on shall be deemed to have satisfied the [ ] (1) Age requirement as of the Effective Date. [ ] (2) Service requirement as of the Effective Date. [ ] (3) Age and service requirements as of the Effective Date. [X] (4) N/A (Age and Service requirements in A-2.01(c) apply to all Employees.) (e) Entry Date: Shall mean: (select one) [ ] (1) First day of Plan Year. [X] (2) First day of Plan Year and the date 6 months after the first day of the Plan Year. [ ] (3) The first day of the Plan Year and the dates which are 3, 6 and 9 months after the first day of the Plan Year. (Not Recommended) [ ] (4) First day of each month. (Not recommended.) III. PROFIT SHARING CONTRIBUTIONS AND ALLOCATIONS A-3.01 Contributions (a) The Employer shall contribute [select (1), (2) or (3)] [ ] (1) out of current or accumulated profits. [X] (2) without regard to current or accumulated profits. [ ] (3) N/A [A-3.01(a)(6) is elected] The amount of such contribution shall be: [select (4),(5) or (6)] [X] (4) As determined by the Board of Directors each year. [ ] (5) Other ----------------------------------------------- ----------------------------------------------- [ ] (6) The Employer will make no contribution under this Section A-3.01(a). [Do not complete Sections A-3.01(b), (d) and (e). Section A-3.01(c) must still be completed.] 7 (b) Allocation of contributions under A-3.01(a), above, shall be made for all Participants who are credited with at least [select (1), (2), or (3)] [X] (1) 1,000 Hours of Service [ ] (2) 500 Hours of Service [ ] (3) one Hour of Service during the Plan Year and [select (4) or (5)] [ ] (4) regardless of employment on the last day of the Plan Year. [X] (5) who is employed with the Employer on the last day of the Plan Year. The preceding notwithstanding, for Plan Years beginning after December 31, 1989, if the Plan would otherwise fail to satisfy the requirements of Code Sections 401(a)(26) or 410(b) because the Employer contributions have not been allocated to a sufficient number of percentage of Participants for a Plan Year, then the following rules shall apply: (6) The group of Participants eligible to share in the Employer's contribution shall be expanded to include all Participants who are employed on the last day of the Plan Year and who are credited with at least 500 Hours of Service. (7) If after the application of paragraph (6) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution shall be further expanded to include all Participants who are credited with at least 500 Hours of Service regardless of employment on the last day of the Plan year. Note: Employer includes all employers who are required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o) (c) If a participant dies, retires, or becomes disabled during the Plan Year and does not complete the hours requirement for a contribution, an allocation [X] (1) shall not be made on such Participant's behalf for such Plan Year. [ ] (2) shall be made on such Participant's behalf for such Plan Year regardless of any last day requirement elected under A-301(b)(5). Note: The above election applies to Profit Sharing Contributions under Section A-3.01(a), Matching Contributions under A-4.02 and Qualified Non-elective Contributions under A-4.03. 8 (d) Employer contributions under this Section and forfeitures, if applicable, shall be allocated to Participant's Accounts as follows: [X] (1) NON-INTEGRATED FORMULA On a pro-rata basis to all Participants in the proportion that a Participant's Compensation bears to the total of all Participant's Compensation. [ ] (2) INTEGRATED FORMULA (INTEGRATED WITH SOCIAL SECURITY) Note: This Plan may not provide for permitted disparity (integration with Social Security) if the Employer maintains any other plan that provides for permitted disparity and benefits any of the same Participants. STEP ONE: In any Plan Year the Plan is Top-Heavy contributions and forfeitures (if applicable) shall be allocated to all Participants in the ratio that each Participant's Compensation bears to all Participant's Compensation, but not in excess of 3% of such compensation. (If the plan is not top-heavy, proceed to step two.) STEP TWO: Any contributions and forfeitures not allocated in STEP ONE shall be allocated to each Participant's Account in the ratio that the sum of each Participant's total Compensation plus Compensation in excess of the integration level bears to the sum of all Participants total Compensation plus Compensation in excess of the integration level, but not in excess of the maximum disparity rate. STEP THREE: Any remaining Employer contributions or forfeitures shall be allocated to each Participant's Account in the ratio that each Participant's total Compensation for the Plan Year bears to all Participants' total Compensation for that year. For the purpose of this Section, Compensation shall mean Compensation as defined in Section 1.13 of the Plan. The integration level shall be: [ ] (i) The Taxable Wage Base [The maximum amount of earnings which may be considered wages for a year under Section 3121(a)(1) of the Code in effect as of the first day of the Plan Year.] [ ] (ii) $____________(Must be less than the Taxable Wage Base.) 9 The maximum profit sharing disparity rate is equal to the lesser of: (a) 5.7%, or (b) The applicable percentage determined in accordance with the table below: If the integration level: Is more But not more The applicable than than percentage is ------- ------------ -------------- $0.00 $X* 5.7% X* 80% of TWB*** 4.3% 80% of TWB*** Y** 5.4% * X = the greater of $10,000 or 20% of the TWB. ** Y = any amount more than 80% of the TWB but less than 100% of the TWB. ***TWB = Taxable Wage Base at the beginning of the Plan Year. The TWB for 1989 is $48,000. The TWB for 1990 is $51,300. (e) Is any Employee who is eligible to participate under this Plan covered by any other plan [including plans of non-participating employers required to be aggregated under Section 414(b), (c), (m) or (o) of the Code] which is integrated with Social Security? [X] (1) No [ ] (2) Yes [may not elect A-3.01(d)(2)] A-3.03 (a) Rollover contributions: [ ] (1) shall not be permitted under this Plan. [X] (2) shall be permitted under this Plan. (b) Rollover contributions shall be accepted from: [ ] (1) Participants only. [X] (2) Participants and non-Participants (otherwise eligible Employee who have not yet satisfied the age and/or service requirements for participation). A-3.07 ALLOCATION OF EARNINGS shall be based on the Account balance as of the beginning of the allocation period plus 1/2 of the contribution allocated at the end of the allocation period, less all withdrawals, plus investment transfers in, and less investment transfers out, unless otherwise specified. This plan utilizes daily accounting. ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- 10 A-3.08 ALL FORFEITURES occurring at the end of Plan Year: (select one) [X] (a) shall be used to reduce the Employer's contribution for the current Plan Year. If the Employer does not make a contribution for a Plan Year, any available forfeitures shall be treated as Employer Contributions. [ ] (b) shall be allocated in the same manner as Employer contributions under Section 3.01 for the current Plan Year. However, forfeitures shall not be allocated to Participants who are not employed on the last day of the Plan Year unless such allocation is required to satisfy the requirements of Code Sections 401(a) (26) and/or 410(b). (Do not elect if no Profit Sharing contribution is specified in A-3.01). IV. CASH OR DEFERRED ARRANGEMENT (CODA) A-4.01 ELECTIVE DEFERRALS (a) An eligible Employee may elect to have his or her annual Compensation reduced by [X] (1) from 1 % to 20 % ---------- ------------ [ ] (2) ------------------------------------------------------- (Specify) Such election shall be in writing and in a form and manner specified by the Plan Administrator. (b) A participant may elect to commence, or to modify the amount of, Elective Deferrals as of: [ ] (1) the first day of each Plan Year. [X] (2) the first day of each Plan Year and the date 6 months after the first day of each Plan Year. [ ] (3) the first day of each Plan Year quarter. The Plan Administrator may permit an additional election in the event an Actual Deferral Percentage Test, performed during the Plan Year, permits or requires an adjustment in the deferral percentages. A-4.02 MATCHING CONTRIBUTIONS (a) The Employer [select (1) or (2)] [X] (1) shall [ ] (2) shall not make Matching Contributions to the Plan on behalf of all Participants who elect to have Elective Deferrals made under the Plan and who are credited with at least [select (3), (4) or (5)] [X] (3) 1,000 Hours of Service 11 [ ] (4) 500 Hours of Service [ ] (5) one Hour of Service during the Plan Year and [select (6) or (7)] [ ] (6) regardless of employment on the last day of the Plan Year. [X] (7) who is employed with the Employer on the last day of the Plan Year. The preceding notwithstanding, for Plan Years beginning after December 31, 1989, if the Plan would otherwise fail to satisfy the requirements of Code Section 401(a)(26) or 410(b) because the Employer contributions have not been allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution shall be expanded to include all Participants who are employed on the last day of the Plan Year and who are credited with at least 500 Hours of Service. (2) If after the application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution shall be further expanded to include all Participants who are credited with at least 500 Hours of Service regardless of employment on the last day of the Plan year. Note: Employer includes all employers which are required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o). (b) The employer shall contribute and allocate to each Participant's Matching Contribution Account: [ ] (1) an amount equal to ___________ percent of the Participant's Elective Deferrals. [X] (2) a discretionary matching contribution equal to a percentage (to be determined each year by the Employer) of each Participant's Elective Deferrals. (c) The Employer shall not match Elective Deferrals in excess of 6.0 percent of a Participant's ----------- [ ] (1) compensation per pay period. [X] (2) annual compensation. (d) The Matching Contribution allocated to any Participant's account for the Plan Year shall not exceed [ ] (1) $ -------------- [X] (2) N/A 12 (e) Matching Contributions shall be vested in accordance with the following schedule: [ ] (1) 100% vested at all times. [X] (2) The vesting schedule as elected in A-11.02 of the Adoption Agreement. (f) Matching contributions shall be made [ ] (1) only from current or accumulated profits. [X] (2) without regard to current or accumulated profits. A-4.03 (a) Qualified Non-elective Contributions shall be allocated to the accounts of Non-highly Compensated Participants who are credited with at least [select (1), (2) or (3)] [X] (1) 1,000 Hours of Service [ ] (2) 500 Hours of Service [ ] (3) one Hour of Service during the Plan Year and [select (4) or (5)] [ ] (4) regardless of employment on the last day of the Plan Year. [X] (5) who is employed with the Employer on the last day of the Plan Year. The preceding notwithstanding, for Plan Years beginning after December 31, 1989, if the Plan would otherwise fail to satisfy the requirements of Code Sections 401(a)(26) or 410(b) because the Employer contributions have not been allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution shall be expanded to include all Participants who are employed on the last day of the Plan Year and who are credited with at least 500 Hours of Service. (2) If after the application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution shall be further expanded to include all Participants who are credited with at least 500 Hours of Service regardless of employment on the last day of the Plan year. Note: Employer includes all employers required to be aggregated with the Employer under Code Sections 414(b), (c), (m) or (o). 13 A-4.13 Pre-retirement distributions of a Participant's entire Account balance, including Elective Deferrals and Qualified Non-elective Contributions, upon attainment of age 59 1/2 (may not be less than 59 1/2) [X] (a) shall [ ] (b) shall not be permitted provided the Participant is 100% vested, and the balance in the Participant's Account has accumulated for at least two (2) years or the Participant has completed five (5) years of participation in the Plan. A-4.14 Distributions on account of financial hardship [X] (a) shall [ ] (b) shall not be permitted to the extent provided in Section 4.14, and subject to applicable regulations. Distributions on account of financial hardship shall be made only from: [X] (c) Elective Deferrals (and any earnings credited to a Participant's Elective Deferral account as of the end of the last Plan Year ending before July 1, 1989.) The amount available for distribution shall include the amount credited to the Participant's Qualified Matching Contribution and Qualified Non-elective Contribution accounts as of the end of the last Plan Year ending before July 1, 1989. [X] (d) Account balances which are not subject to the withdrawal restrictions of Section 4.13 provided the Participant is 100% vested, and the funds have accumulated for at least two (2) years or the Participant has completed five (5) years of participation in the Plan. Note: Hardship withdrawal provisions for funds described in (d) above, are protected benefits under Code Section 411(d)(6). If the conditions described in Section 4.14 are more restrictive than those in effect immediately prior to the adoption of this Plan, the prior conditions shall continue to apply to all such funds including those which have accrued after the date this Plan is adopted, and the Employer should attach to this Adoption Agreement a hardship withdrawal policy statement fully describing the objective and nondiscriminatory conditions applicable to such withdrawals. 14 V. LIMITATIONS ON ALLOCATIONS If the Employer maintains or ever maintained another qualified plan in which any Participant in this Plan is (or was) a Participant or could become a Participant, the Employer must complete this Section. The Employer must also complete this Section if it maintains a welfare benefit fund, as defined in Section 419(e) of the Code, or an individual medical account, as defined in Section 415(l)(2) of the Code, under which amounts are treated as Annual Additions with respect to any Participant in this Plan. A-5.11 If the Participant is covered under another qualified Defined Contribution plan maintained by the Employer, other than a Master or Prototype plan: [ ] (a) The provisions of Sections 5.05 through 5.10 of Article V shall apply as if the other plan were a Master or Prototype plan. [ ] (b) Provide the method under which the plans shall limit total Annual Additions to the Maximum Permissible Amount, and shall properly reduce any excess amounts, in a manner that precludes Employer discretion. ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- [X] (c) N/A The Employer maintains no other plan which provides an Annual Addition as defined under Section 5.13(a). A-5.12 If the participant is or has ever been a participant in a Defined Benefit plan maintained by the Employer: [ ] (a) The Annual Additions which may be credited to the Participant's Account under this Plan shall not be limited other than by the Maximum Permissible Amount as defined in Section 5.13(k). If the sum of the Defined Benefit Fraction and the Defined Contribution Fraction would otherwise exceed 1.0, such sum shall be reduced to not exceed 1.0 by adjusting the Participant's Projected Annual Benefit under the Defined Benefit plan. [ ] (b) Provide language which shall satisfy the 1.0 limitation of Section 415(e) of the Code. Such language must preclude Employer discretion. ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- [X] (c) N/A The Employer does not and has never maintained a Defined Benefit plan. 15 VI. INVESTMENT OF CONTRIBUTIONS A-6.02 Life Insurance: The Trustee may, at the direction of the Participant and subject to the requirements of Section 6.02, use a portion of each contribution to purchase life insurance. [ ] (a) Yes, subject to the guidelines outlined below, if any. ---------------------------------------------------------- ---------------------------------------------------------- ---------------------------------------------------------- [X] (b) No A-6.03 Participants may direct the Trustee as to the investment of their individual Account balances which are attributable to: (check all which apply) [ ] (a) Elective Deferrals [ ] (b) Employer Matching Contributions [ ] (c) Rollovers [X] (d) All contributions regardless of source [ ] (e) None of the above--Participants may not direct the investment of their accounts A-6.05 Participant Loans [X} (a) shall be permitted in accordance with the Employer's written loan policy. [ ] (b) shall not be permitted. VIII. BENEFITS A-8.01 Normal Retirement Date: (select one) [X] (a) The later of the first day of the month (select one) [ ] nearest [X] on or following a Participant's 65th (cannot be less than 55) birthday or the first day of the month on or following the 5th (1st - 7th or N/A) anniversary in which (select one) [ ] participation commenced [X] the Employee first performed an Hour of Service but in no event later than the first day of the month on or following a Participant's N/A birthday. 16 [ ] (b) The later of the first day of the Plan Year nearest a Participant's _________________ (cannot be less than 55) birthday, or the first day of the Plan Year nearest the ________________ (1st-7th or N/A) anniversary in which (select one) [ ] participation commenced [ ] the Employee first performed an Hour of Service but in no event later than the first day of the Plan Year nearest a Participant's _____________________ birthday. A-8.02 (a) Early Retirement Date: Shall mean: (select one) [ ] (1) None--no Early Retirement Date. [X] (2) First day of any [X] month [ ] Plan Year on or following a Participant's 55th (cannot be less than 55) birthday or after 57 (1-7 or N/A) [X] Vesting Years of Service [ ] years of participation in the Plan, whichever date is later. (b) Early Retirement Benefit: Upon satisfaction of the age and service requirements for Early Retirement, a Participant shall: (select one) [ ] (1) automatically become 100% vested in the Account. [X] (2) be entitled to the vested Account based on the vesting schedule designated in the Adoption Agreement. A-8.04 Disability Retirement Benefit: (a) In the event of total and permanent disability, a Participant shall: (select one) [ ] (1) automatically become 100% vested in the Account. [ ] (2) be entitled to the vested Account based on the vesting schedule designated in the Adoption Agreement. (b) Disability shall mean a physical or mental impairment which is expected to result in death or blindness or which can be expected to last for a continuous period of not less than 12 months resulting in: (select one) [X] (1) an inability to engage in any substantial gainful activity for which the Participant is reasonably suited by reason of training, education and experience as determined by the Plan Administrator. The Plan Administrator may require that the Participant be examined by physician(s) selected by the Plan Administrator. [ ] (2) the Participant being entitled to Social Security Disability Benefits. In the event a Participant has applied for Social Security Disability Benefits, the disability benefits provided by this Plan shall commence upon qualifying for Social Security Disability Benefits. 17 [ ] (3) an inability to perform the normal duties for the Employer as determined by the Plan Administrator. The Plan Administrator may require that the Participant be examined by physician(s) selected by the Plan Administrator. A-8.09 Benefits shall be distributed: [ ] (a) only in the form of a single lump-sum payment. (May not elect if other forms were available immediately preceding the adoption of this Plan.) [X] (b) in accordance with the provisions of Section 8.08. XI. TERMINATION OF SERVICE A-11.02 The vesting schedule for benefits (derived from the Employer's contributions pursuant to Article III) upon termination of employment shall be determined according to the selection based on Vesting Years of Service as credited in accordance with A-1.73: (select one) [ ] (a) 100% vested at all times [ ] (b) 100% vested after ______ (not to exceed 5) years of service. [ ] (c) 20% vested after 2 years of service 40% vested after 3 years of service 60% vested after 4 years of service 80% vested after 5 years of service 100% vested after 6 years of service [ ] (d) 20% vested after 3 years of service 40% vested after 4 years of service 60% vested after 5 years of service 80% vested after 6 years of service 100% vested after 7 years of service [X] (e) Specify: (Must in all years be as favorable as the schedule in (b) above, or as favorable as the schedule in (d) above.) 20 % vested after 1 years of service ---- --- 40 % vested after 2 years of service ---- --- 60 % vested after 3 years of service ---- --- 80 % vested after 4 years of service ---- --- 100 % vested after 5 years of service ---- --- % vested after years of service ---- --- % vested after years of service ---- --- Note: If this is a restated plan and the vesting schedule has been amended, enter the pre-amended schedule below: [X] (f) 20 % vested after 3 years of service ---- --- 40 % vested after 4 years of service ---- --- 60 % vested after 5 years of service ---- --- 80 % vested after 6 years of service ---- --- 100 % vested after 7 years of service ---- --- % vested after years of service ---- --- % vested after years of service ---- --- [ ] (g) Vesting schedule has not been amended. 18 A-11.05 Distributions upon termination of Service shall be made as soon as administratively feasible following: [X] (a) Termination of employment. [ ] (b) The end of the Plan Year following termination of employment. [ ] (c) The end of the Plan Year during which a One-Year Break in Service occurs. [ ] (d) Early or Normal Retirement Date, Death, or Disability. Note: May not be more restrictive than the provision in effect immediately preceding the adoption of this Plan. A-11.09 Benefits which are no longer immediately distributable [ ] (a) shall not be distributed without the consent of the Participant and/or Beneficiary prior to the time required by Article X. [X] (b) shall, subject to the requirements of Article IX, be distributed as soon as administratively feasible following the date on which they cease to be immediately distributable. Note: An Account balance is immediately distributable if any part of the Account balance could be distributed to the Participant (or Surviving Spouse) before the Participant attains (or would have attained if not deceased) the later of Normal Retirement Age or age 62. XV. TOP-HEAVY Before completing this Section of the Adoption Agreement, the Employer should carefully read Article XV of the Basic Plan Document paying particular attention to Sections 15.03 thru 15.05. A-15.02 Minimum Top-heavy Allocations: The purpose of this Section A-15.02 is to coordinate Top-Heavy minimum contributions or benefits when two or more plans of the Employer are involved. If the Employer maintains only this plan, and has never maintained a Defined Benefit plan, the Employer is required to complete only Section (d). If the Employer maintains (or has maintained) a Defined Benefit plan, this Section should be completed only with the advice of that plan's actuary. If the Employer maintains two Defined Contribution plans, and has never maintained a Defined Benefit plan, the Employer is required to complete only Sections (c) or (d). (a) If the Employer maintains a Defined Benefit plan, this Section or --------- - ------- ------- ---- Section (d) below must be completed. If a non-key Employee participates in both a Defined Benefit plan and a Defined Contribution plan which are part of a Required Aggregation Group or a Permissive Aggregation Group and the Top-Heavy Ratio exceeds 60% (but does not exceed 90%), Top-Heavy minimum benefits shall be provided as follows: 19 [ ] (1) In the Defined Contribution Plan, with a minimum allocation of: [ ] (i) 5% of total compensation (Defined Benefit and Defined Contribution Fractions computed using 100% of the dollar limitation) [ ] (ii) 7.5% of total compensation (Defined Benefit and Defined Contribution Fractions computed using 125% of the dollar limitation) [ ] (2) In the Defined Benefit Plan, with a minimum annual accrual of: [ ] (i) 2% of the highest 5 consecutive year average compensation (Defined Benefit and Defined Contribution fractions computed using 100% of the dollar limitation) [ ] (ii) 3% of the highest 5 consecutive year average compensation (Defined Benefit and Defined Contribution Fractions computed using 125% of the dollar limitation) If the Top-Heavy Ratio exceeds 90%, the minimum benefit shall be provided in: [ ] (3) the Defined Contribution plan with a minimum allocation of 5% of total compensation. [ ] (4) the Defined Benefit plan with a minimum accrual of 2% of the highest 5 consecutive year average compensation Note: When the Top-Heavy Ratio exceeds 90%, the Defined Benefit and Defined Contribution Fractions shall be computed using 100% of the dollar limitation. (b) If the Employer maintains (or has maintained) a Defined Benefit --------- -- --- ---------- - ------- ------- plan, this Section or Section (d) below must be completed. If the Employer maintains both a Defined Benefit plan and a Defined Contribution plan which are part of a Required Aggregation Group or a Permissive Aggregation Group and the Top-Heavy Ratio exceeds 60% (but does not exceed 90%), a non-key Employee who participates only in the Defined Contribution plan shall receive a minimum allocation of: [ ] (1) 3% of total compensation (Defined Benefit and Defined Contribution Fractions computed using 100% of the dollar limitation) [ ] (2) 4% of total compensation (Defined Benefit and Defined Contribution Fractions computed using 125% of the dollar limitation) If the Top-Heavy Ratio exceeds 90% each non-key Employee who participates only in the Defined Contribution plan shall receive 20 a minimum allocation of 3% of total compensation. (c) If the Employer maintains two Defined Contribution plans, this --------- --- ------- ------------ Section or Section (d) below must be completed. If a non-key Employee participates in two Defined Contribution plans maintained by the Employer, the Defined Contribution minimum allocation requirement shall be met [ ] (1) in this plan. [ ] (2) in the other plan. ---------------------------------- (Name of Plan) (d) Complete this Section only if (a), (b) and/or (c) have not been -------- ---- ------- ---- -- --- --- ------ --- ---- --- ---- completed. --------- [ ] (1) Specify how the plans shall provide Top-Heavy minimum benefits for non-key Employees precluding Employer discretion and avoiding inadvertent omissions. ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ [X] (2) The Employer maintains only this Plan and has never maintained a Defined Benefit Plan. A-15.06 TOP HEAVY VESTING...If this Plan becomes a Top-Heavy Plan, the following vesting schedule for such Plan Year and each succeeding Plan Year, whether or not Top-Heavy, shall be effective and shall be treated as a Plan amendment pursuant to this Agreement. [ ] (a) 100% vested after (not to exceed 3) years of service. ------- [ ] (b) 20% vested after 2 years of service 40% vested after 3 years of service 60% vested after 4 years of service 80% vested after 5 years of service 100% vested after 6 years of service [ ] (c) Specify: (Must in all years be as favorable as the schedule in (a) above, or as favorable as the schedule in (b) above.) % vested after years of service ------ ----- % vested after years of service ------ ----- % vested after years of service ------ ----- % vested after years of service ------ ----- % vested after years of service ------ ----- % vested after years of service ------ ----- [X] (d) N/A, Vesting schedule in A-11.02 is equal to or more favorable than (a) or (b) above. However, this Section does not apply to the Account balances of any Participant who does not have an Hour of Service after the Plan has initially become Top-Heavy. Such Participant's Account balance attributable to Employer contributions and forfeitures shall be determined without regard to this section. 21 The adopting Employer may not rely on an Opinion Letter issued by the National Office of the Internal Revenue Service as evidence that the Plan is qualified under Section 401 of the Internal Revenue Code. In order to obtain reliance with respect to plan qualification, the Employer must apply to the appropriate key district office for a Determination Letter. This adoption agreement may not be used only in conjunction with basic plan document #01. Provided the adoption of this Plan is properly registered with the Prototype Sponsor, the Prototype Sponsor shall inform the adopting Employer of any amendments made to the Plan or of the discontinuance or abandonment of the Plan. The adoption of the Plan is not properly registered unless the attached registration form along with the applicable registration fee is returned to: Lincoln National Life Insurance Company 1300 South Clinton Street P.O. Box #2248 Ft. Wayne, IN 46801-2248 Inquiries by adopting Employers regarding the adoption of this Plan, the intended meaning of any Plan provisions, or the effect of the Opinion Letter may be directed to the Prototype Sponsor at the above address or phone (219) 455-4940. 22 Use of this Plan Document without proper registration and payment of the applicable registration fee constitutes an unauthorized use. The Employer represents that it has consulted with its attorney with respect to its adoption of this Plan, and agrees to the provisions of the Plan and Trust. IN WITNESS HEREOF, the Employer has caused this Agreement to be signed by its duly authorized Officer and the Trustee(s) have accepted the appointment and signed this Agreement. De Crane Aircraft Holdings, Inc. oka --------------------------------- (Legal Name of Employer) DAH, Inc. BY: /s/ Robert A. Rankin --------------------------------- (Signature of Officer) 3-29-96 Robert A. Rankin, CFO - ----------------------------------- --------------------------------- (Date) (Typed or Printed Name and Title of Officer) Accepted By: - ----------------------------------- --------------------------------- (Date) (Signature of Trustee) Robert A. Rankin - ----------------------------------- --------------------------------- (Date) (Signature of Trustee) - ----------------------------------- --------------------------------- (Date) (Signature of Trustee) Participating Employer Authorized Signature Date - ---------------------- -------------------- ---- Tri-Star Electronics, Int'l, Inc. /s/ Robert A. Rankin 3/29/96 - ------------------------------- ------------------------ --------------- Cory Components /s/ Robert A. Rankin 3/29/96 - ------------------------------- ------------------------ --------------- Hollingsead, Int'l. /s/ Robert A. Rankin 3/29/96 - ------------------------------- ------------------------ --------------- - ------------------------------- ------------------------ --------------- Failure to properly complete this Adoption Agreement may result in disqualification of the Plan. 23 REGISTRATION OF THE LINCOLN NATIONAL LIFE INSURANCE COMPANY NON-STANDARDIZED 401(k) SALARY REDUCTION PLAN AND TRUST PROTOTYPE PLAN PLAN #007 IRS SERIAL #D359971a Adopting Employer: De Crane Aircraft Holdings, Inc. oka DAH, Inc. ------------------------------------------------------------ Address: 2201 Rosecrans Avenue ------------------------------------------------------------ El Sequndo, CA 90245 ------------------------------------------------------------ ------------------------------------------------------------ Telephone: (310) 536-0444 FAX (310) 536-9322 --------------------- List all investment contract and plan numbers assigned by Lincoln, if any: GSA #52212 PL-45374 - -------------------------------------------------------------------------------- The Adopting Employer agrees to provide Lincoln with any changes to its current mailing address and to give Lincoln written notification of any plan amendment (as outlined in Section 12.02 of the Defined Contribution Prototype Plan Basic Plan #01), restatement or termination. In consideration of the above, and of the registration fee of $150, Lincoln agrees to: *provide the Adopting Employer with a copy of the current Defined Contribution Prototype Plan Basic Plan #01 and Adoption Agreement; and *advise the Adopting Employer of any amendments made to the Prototype Plan; and *inform the Adopting Employer of any changes in the Prototype Plan's qualified status; and *inform the Adopting Employer of any discontinuance or abandonment of the Prototype Plan. This registration does not effect the rights and obligations of Lincoln or the Adopting Employer under any other arrangement, including (but not limited to) Lincoln's right to charge an additional fee for providing an updated Prototype Plan and/or Adoption Agreement. Continued reliance by the Adopting Employer upon the Prototype Plan's favorable Opinion Letter from the IRS is dependant upon the Adopting Employer adopting the current version of the Prototype Plan. Please sign and return this registration form, together with the registration fee, to: Lincoln National Life Insurance Company 1300 South Clinton Street P.O. Box 2248 Fort Wayne, IN 46801-2248 Attention: Kathy Spillson /s/ Robert A. Rankin CFO 3/29/96 - -------------------------------------------------------------------------------- (Signature of Adopting Employer) (Title) (Date) Robert A. Rankin CFO 24 LOAN POLICY Plan # PS-45374 Plan Name DAH Retirement Plan ------------ -------------------------------------------------- 1) Name of fiduciary responsible for the loan program ------------------------ (Specific person or position responsible for overseeing program) 2) Loan application procedures: (*) Participation must fill out appropriate loan application (Lincoln National form #223598) including required spousal consent. (*) Participant must sign promissory note (SAMPLE attached). (*) Trustee or fiduciary must sign application, assign reasonable rate and keep promissory note on file. (*) Application must be submitted to Lincoln National for processing. Loans will be funded first from the source of money containing the largest dollar balance in the participant's account. 3) Basis for approval or denial of loans: (*) Loans will be approved if all policy specifications are met and requested loan amount is available. (*) Loans will be denied if any policy specifications are not met. It is the Trustee's responsibility to notify the participant if a loan is denied. 4) Limitations on types and amounts of loans: a. Loans will be granted for the following reasons: Financial Hardship ----- Purchase of a Primary Residence ----- Other (please specify): ----- ------------------------------------- ------------------------------------------------------------ b. Loan amounts will be limited as follows: (*) 1,000 minimum loan amount. 50% Maximum loan amount is 50% of vested account balance unless --- otherwise specified below. Please note: if over 50%, it is the responsibility of the fiduciary named in #1 above to obtain collateral, process foreclosures (as necessary), and make the participant aware of possible immediate taxation penalties. ------------------------------------------------- ------------------------------------------------------------ c. Other loan provisions: (*) Participant may have one loan outstanding at any time. Exception: a second loan may be granted provided one of the loans is a home mortgage. (*) A period of one month from the date the original loan is repaid in full is required before applying for a subsequent loan. (*) Loans may not be renegotiated (e.g. loan amount, interest rate or repayment period). (*) Length of loan may not exceed 5 years (except for purchase of primary residence). Page 5 (*) Loans for active participants must be repaid through payroll deduction at least monthly. (*) Loans for participants on leave of absence must be repaid by personal check at least monthly. (*) Loans for terminated participants or beneficiaries with deferred vested balances must be paid by personal check at least monthly. Other (i.e. administrative fees, higher rates, credit --- reports, etc.): --------------------------------------------- 5) Procedure for determining a reasonable rate of interest: (*) Rate must be commensurate with interest rates currently charges at commercial institutions for similar loans at that time. --- Rate of interest charged will take into effect "appropriate regional factors" and reflect rates of local or regional commercial institutions (i.e. banks, credit unions, savings & loan associations, etc.). --- Other (list any specific formulas for determining reasonable rate): ---------------------------------------------------------------------- ---------------------------------------------------------------------- 6) Types of collateral acceptable for a loan: (*) Up to 50% of the participant's vested account balance. Other (please specify type of collateral acceptable and required --- paperwork, i.e. home mortgages, certificates of deposit, etc.). Fiduciaries are responsible for obtaining and holding all collateral other than vested account balances. ----------------------------------- ---------------------------------------------------------------------- 7) Events constituting default of a loan and procedures which will be taken to preserve plan assets in the event of default: (*) For loans collateralized by vested account balances: if three (3) months transpire and a loan payment remains due and unpaid, the loan is in default and a taxable event occurs. The outstanding loan balance will be reported as income on Form 1099R to the participant and the IRS. No interest will be accrued following the default. The defaulted loan remains an obligation of the participant and still needs to be repaid. (*) If a participant has a defaulted loan, another loan will not be granted. For loans collateralized by other means of collateral: if three (3) --- months transpire and a loan payment remains due and unpaid, the loan is in default and the trustee will (please specify steps to be taken): ---------------------------------------------------------------------- ---------------------------------------------------------------------- Other (please specify): --- ----------------------------------------------- ---------------------------------------------------------------------- Page 6 Please note, if you are using the Defined Contribution Prototype Plan Document sponsored by the Lincoln National Life Insurance Company, a 5% or more owner- employee of an S corporation, a sole proprietor, a more than 10% owner of a partnership, and a 10% or more stockholder owner in a corporation, unless the stockholder is also a plan participant, (and their spouses and certain other relatives) are ineligible to receive loans from this qualified plan. The above policy is designed to meet DOL requirements as specified under Section 2550.408b-1, as modified by DOL Advisory Opinion 89-30A, regarding written loan policies. Any changes in this policy must be submitted in writing prior to being considered for the approval of a loan. Effective Date: (first day of the current Plan Year ------------------------- unless otherwise specified) Date 3/29/96 Trustee(s) signature(s) /s/ Robert A. Rankin -------------- ----------------------------------- ----------------------------------- Page 7 AGREEMENT #1 AMENDING DAH Retirement Plan 401(k) Salary Reduction Plan and Trust THIS AGREEMENT, made and entered into this 25th day of September, 1996, by and ---- ---------- between DeCrane Aircraft Holdings, Inc. oka DAH, Inc. organized under the laws of California with principal offices at El Segundo, California (hereinafter called the "Employer" or the "Company") and Robert A. Rankin (hereinafter referred to as the Trustee); W I T N E S S E T H: - - - - - - - - - - That at a meeting of the Board of Directors of the Company held on the 25th day of September, 1996, certain amendments to the 401(k) Salary Reduction Prototype Plan were authorized and directed; Now, therefore, it is agreed by and between the parties hereto that the aforementioned 401(k) Salary Reduction Plan and Trust Agreement be and it is hereby amended effective September 19, 1996 as follows: Section A-1.64 shall be amended to read as follows: "Years of Service with a predecessor employer: Years of Service with any Company acquired by DeCrane Aircraft Holdings, Inc. through acquisition, for whom this Employer does not maintain a predecessor plan shall be considered under the Plan for purposes of vesting and eligibility." Section A-2.01(e) shall be amended to read as follows: "Entry Date: Shall mean: The first day of the Plan Year and the dates which are 3, 6 and 9 months after the Plan Year." IN WITNESS WHEREOF, the employer has caused this agreement to be signed by its duly authorized officer and the Trustees have also signed this amendment. DeCrane Aircraft Holdings, Inc. oka DAH, Inc. --------------------------------------------- Name of Employer BY: /s/ Robert Rankin -------------------------------------- Signature of Officer 9-25-96 - -------- -------------------------------------- Date Typed or Printed Name and Title of Officer Accepted By: 9-25-96 /s/ Robert Rankin - ------- ---------------------------------------- Date Signature of Trustee Participating Employer Authorized Signature Date - ----------------------- --------------------- ----- Tri-Star Electronics - -------------------- International, Inc. /s/ Robert Rankin 9-25-96 - -------------------- --------------------- ------- Cory Components /s/ Robert Rankin 9-25-96 - -------------------- --------------------- -------- Hollingsead International /s/ Robert Rankin 9-25-96 - -------------------------- ----------------------- -------- EX-10.8 42 EXHIBIT 10.8 SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT (this "AGREEMENT") dated as of December 8, 1998, by and among DeCrane Holdings Co., a Delaware corporation (the "COMPANY") and [ ] (the "INVESTOR"). WHEREAS, the Investor desires to subscribe for, and the Company desires to issue to the Investor, the number of shares of common stock, par value $0.01 per share (the "COMMON STOCK"), and the number of shares of preferred stock, par value $0.01 per share (the "PREFFERED STOCK"), of the Company set forth on Exhibit A hereto (such shares of Common Stock and Preferred Stock to be subscribed for by the Investor and issued to the Investor by the Company, the "SHARES"). NOW, THEREFORE, IT IS AGREED: ARTICLE I ISSUANCE OF SHARES; CONSIDERATION Section 1.01. ISSUANCE OF SHARES. Upon the terms set forth in this Agreement, the Company hereby agrees to issue to the Investor, and the Investor hereby subscribes for, the Shares. Section 1.02. SUBSCRIPTION. In consideration for the issuance by the Company of the Shares, the Investor shall: (a) pay to the Company, by wire transfer of immediately available funds to an account specified by the Company, an amount equal to 50% of the aggregate subscription price set forth on Exhibit A hereto; and (b) execute and deliver to the Company a Promissory Note and Pledge Agreement (the "PROMISSORY NOTE AND PLEDGE") in the form of Exhibit C hereto in a principal amount equal to 50% of the aggregate subscription price set forth on Exhibit A hereto. Section 1.03. INVESTORS' AGREEMENT. As a condition to the issuance of the Shares, the Investor shall execute and deliver to the Company an agreement in the form of Exhibit B hereto, pursuant to which the Investor agrees to be bound by the terms of the Amended and Restated Investors' Agreement, dated as of October 2, 1998, by and among the Company and the stockholders of the Company named therein (the "DLJ ENTITIES"). ARTICLE II REPRESENTATIONS OF THE COMPANY Section 2.01. CORPORATE EXISTENCE AND POWER. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The company has all corporate power to own its properties and to carry on its business as now conducted. Section 2.02. AUTHORITY AND APPROVAL. The execution and delivery of this Agreement are within the corporate powers of the Company and have been duly authorized by all necessary corporate action on the part of the Company. This Agreement constitutes a legal, valued and binding agreement of the Company, enforceable against it in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. Section 2.03. SHARES. When issued to the Investor in accordance with the terms hereof, the Shares will be duly authorized, validly issued, fully paid and non-assessable. Section 2.04. CAPITALIZATION. As of November 9, 1998, the authorized capital stock of the Company consisted of (i) 3,500,00 shares of Common Stock, of which 2,826,087 shares were issued and outstanding as of such date, and (ii) 2,500,000 shares of Preferred Stock, of which 340,000 shares were issued and outstanding as of such date. Except for (i) the Preferred Stock, and (ii) warrants to purchase an aggregate of 155,000 shares of Common Stock issued to the DLJ Entities on October 2, 1998 and warrants to purchase an aggregate of 155,000 shares of Common Stock issued in connection with the Company's 12% Senior Subordinated Notes due 2008 on October 5, 1998, as of November 9, 1998 there were no outstanding securities convertible into or exchangeable for the capital stock of the Company and no outstanding options, rights or warrants to purchase or subscribe for any shares of the capital stock of the Company. 2 ARTICLE III REPRESENTATIONS OF THE INVESTOR Section 3.01. AUTHORIZATION. The Investor has full power and authority to enter into this Agreement and the Promissory Note and Pledge and to perform his obligations hereunder and thereunder. Section 3.02. ENFORCEABILITY. Each of this Agreement and the Promissory Note and Pledge has been duly executed and delivered by the Investor and constitutes a legal, valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except to the extent that its enforceability may be subject to applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. Section 3.03. PRIVATE PLACEMENT. (a) The Investor understands that the offering and sale of the Shares to the Investor as contemplated hereby is intended to be exempt from registration under the Securities Act of 1933, as amended (the "1933 ACT") pursuant to Regulation D and Section 4(2) thereunder. (b) The Shares to be acquired by the Investor pursuant to this Agreement are being acquired for his own account for investment and without a view to the public distribution of the shares or any interest therein. The Investor understands that the Shares may not be transferred or sold unless registered under the 1933 Act or an exemption from such registration becomes available. (c) The Investor has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of his investment in the Shares and the Investor is capable of bearing the economic risks of such investment, including a complete loss of his investment in the Shares. (d) The Investor has been given the opportunity to ask questions of and receive answers from the Company concerning the Company, the Shares and other related matters. The Investor further represents and warrants to the Company that he has been furnished with all information he deems necessary or desirable to evaluate the merits and risks of the acquisition of the Shares and that the Company has made available to the Investor or his agents all documents and information relating to an investment in the Shares requested by or on behalf of the Investor. In evaluating the suitability of an investment in the Shares, the Investor has not relied upon any other representations or other information (other than 3 as contemplated by the preceding sentences) whether oral or written made by or on behalf of the Company. (e) The Investor is an "Accredited Investor" as such term is defined in Regulation D under the 1933 Act. ARTICLE IV MISCELLANEOUS Section 4.01. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including facsimile transmission to the recipient's then current facsimile number) and shall be given, if to the Investor, to: [ ] c/o Global Technology Partners, LLC 1300 I Street, N.W. Suite 220 East Washington, D.C. 20005 Fax: (202) 289-3222 if to the Company, to: DeCrane Holdings Co. 2361 Rosecrans Avenue Suite 180 El Segundo, Ca 90245 Attn: R. Jack DeCrane Fax: (310) 643-0746 Section 4.02. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended modified, supplemented or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective. Section 4.03. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; PROVIDED that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto. 4 Section 4.05. COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto. No provision of this Agreement is intended to confer upon any person other than the parties hereto any rights or remedies hereunder. Section 4.06. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this AGreement and supersedes all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter of this Agreement. Section 4.04. CAPTIONS. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. Section 4.08. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with laws of the State of New York. IN WITNESS WHEREOF, the Investor has executed this Agreement and the Company has caused its corporate name to be hereunto subscribed by its officers thereunto duly authorized, all as of the day and year first above written. DECRANE HOLDINGS. CO. By: -------------------------------- Name: Title: INVESTOR By: ------------------------------- Name: 5 EX-10.10 43 EXHIBIT 10.10 DECRANE FINANCE CO. CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of August 28, 1998, and entered into by and among DECRANE FINANCE CO., a Delaware corporation ("FINANCE CO."), THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "LENDER" and collectively as "LENDERS"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as syndication agent hereunder for Lenders (in such capacity, "SYNDICATION AGENT"), and THE FIRST NATIONAL BANK OF CHICAGO, as administrative agent for Lenders (in such capacity, "ADMINISTRATIVE AGENT"). R E C I T A L S WHEREAS, DLJMB has formed Parent, Finance Co. and Acquisition Co. for the purpose of tendering in the Tender Offer for the purchase of all the outstanding DAH Common Stock and to acquire any DAH Common Stock not so purchased in the Tender Offer in the Merger (capitalized terms used herein without definition shall have the meanings set forth therefor in subsection 1.1 of this Agreement); WHEREAS, as soon after the consummation of the Tender Offer as practical, Acquisition Co. and DAH will consummate the Merger and as soon thereafter as practical Finance Co. and DAH will consummate the Second Merger, all with the effect that DLJMB and management of DAH and its Subsidiaries will indirectly own all of the outstanding capital stock of DAH; WHEREAS, Lenders have agreed to extend certain credit facilities to Company to be used for the purposes of providing funds for (x) the Acquisition Financing Requirements, (y) working capital and/or other general purposes of Company and its Subsidiaries and (z) financing Permitted Acquisitions; WHEREAS, Parent and Acquisition Co. have agreed to guarantee the Obligations hereunder and under the other Loan Documents and Parent has agreed to secure its guaranty by granting to Administrative Agent on behalf of Lenders, a first priority Lien on all of the capital stock of Company; WHEREAS, upon consummation of the Merger and the Second Merger, Company will secure all of the Obligations hereunder and under the other Loan Documents by granting to Administrative Agent, on behalf of Lenders, a first priority Lien on substantially all of its personal property and its real property, including a pledge of all of the capital stock of its Domestic Subsidiaries and a pledge of 65% of the capital stock of its Foreign Subsidiaries that are owned by Company or a Domestic Subsidiary; WHEREAS, upon consummation of the Merger and the Second Merger, each of Company's Domestic Subsidiaries will guarantee the Obligations hereunder and under the other Loan Documents and secure its guaranty by granting to Administrative Agent on behalf of Lenders, a first priority Lien on substantially all of its personal property and real property, 1 including a pledge of all of the capital stock of each of its Domestic Subsidiaries and 65% of the capital stock of each of its direct Foreign Subsidiaries; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Company, Lenders, Syndication Agent and Administrative Agent agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. The following terms used in this Agreement shall have the following meanings: "ACQUIRED CONTROLLED PERSON" means any Person (i) in which Company or any of its Subsidiaries has made an Investment permitted under subsection 7.3(viii) and (ii) as to which Company or such Subsidiary exercises control. For purposes hereof, "control" means the power to appoint a majority of the board of directors (or other equivalent governing body) of such Person or to otherwise direct or cause the direction of the management or policies of such Person, whether by contractual arrangement or otherwise. "ACQUISITION CO." means DeCrane Acquisition Co., a Delaware corporation. "ACQUISITION CO. GUARANTY" means the Acquisition Co. Guaranty executed and delivered by Acquisition Co. on the Closing Date, substantially in the form of EXHIBIT XVII hereto, as such Acquisition Co. Guaranty may be amended, supplemented or otherwise modified from time to time. "ACQUISITION FINANCING REQUIREMENTS" means the aggregate of all amounts necessary (i) to finance the purchase price of the DAH Common Stock in the Tender Offer and the Merger, (ii) to repay in full the Existing DAH Debt and (iii) to pay Transaction Costs. "ACQUISITION LENDER" means a Lender having an Acquisition Loan Commitment. "ACQUISITION LOANS" means the Loans made by Acquisition Lenders to Company pursuant to subsection 2.1A(v). "ACQUISITION LOAN COMMITMENT" means the commitment of an Acquisition Lender to make Acquisition Loans to Company pursuant to subsection 2.1A(v), and "ACQUISITION LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. "ACQUISITION LOAN COMMITMENT TERMINATION DATE" means September 30, 2004. "ACQUISITION LOAN EXPOSURE" means, with respect to any Acquisition Lender as of any date of determination (i) prior to the termination of the Acquisition Loan Commitments, that Acquisition Lender's Acquisition Loan Commitment and (ii) after the termination of the Acquisition Loan Commitments, the aggregate outstanding principal amount of the Acquisition Loans of that Acquisition Lender. 2 "ACQUISITION NOTES" means (i) the promissory notes of Company issued pursuant to subsection 2.1D(v) on the Closing Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Acquisition Loan Commitments and Acquisition Loans of any Acquisition Lenders, in each case substantially in the form of EXHIBIT VIII annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "ADJUSTED EURODOLLAR RATE" means, with respect to a Eurodollar Rate Loan for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period. The Eurodollar Rate shall be rounded to the next higher multiple of 1/100 of 1% if the rate is not such a multiple. "ADMINISTRATIVE AGENT" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Administrative Agent appointed pursuant to subsection 9.3A. "AFFECTED LENDER" has the meaning assigned to that term in subsection 2.6C. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "AFFILIATED FUND" means, with respect to any Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "AGENTS" means, collectively, the Syndication Agent and the Administrative Agent. "AGREEMENT" means this Credit Agreement dated as of August 28, 1998, as it may be amended, supplemented or otherwise modified from time to time. "ANNUALIZED" means (i) with respect to the Fiscal Quarter of Company ending December 31, 1998, the applicable amount for such Fiscal Quarter multiplied by four, (ii) with respect to the Fiscal Quarter of Company ending March 31, 1999, the applicable amount for such Fiscal Quarter and the immediately preceding Fiscal Quarter multiplied by two, and (iii) with respect to the Fiscal Quarter of Company ending June 30, 1999, the applicable amount for such Fiscal Quarter and the immediately preceding two Fiscal Quarters multiplied by one and one-third. "ARRANGER" means Donaldson, Lufkin & Jenrette Securities Corporation, as arranger of the credit facilities described herein. "ASSET SALE" means the sale, lease, assignment or other transfer (whether voluntary or involuntary) for value (collectively, a "transfer") by Company or any of its Subsidiaries to any Person other than Company or any of its Wholly-Owned Subsidiaries of (i) any of the equity 3 ownership of any of Company's Subsidiaries, (ii) substantially all of the assets of any division or line of business of Company or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of Company or any of its Subsidiaries (other than (a) inventory and obsolete or worn out equipment sold in the ordinary course of business, (b) Cash Equivalents, and (c) any such other assets to the extent that the aggregate value of such assets transferred in any single transaction or related series of transactions is equal to $250,000 or less). "ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the form of EXHIBIT XII annexed hereto. "ASSUMED INDEBTEDNESS" means Indebtedness of a Person which (i) is in existence at the time such Person becomes a Subsidiary of Company, or (ii) is assumed in connection with an Investment in or acquisition of such Person, and has not been incurred or created by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of Company. "AUTHORIZED OFFICER" means, relative to any Loan Party, its chief executive officer, president, treasurer, chief financial officer or chief accounting officer and any of its other officers whose signatures and incumbency shall have been certified to Administrative Agent and the Lenders pursuant to Sections 4.1A(iv) and 4.2A(iv). "AVTECH" means Avtech corporation, a Washington corporation, and its successors. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BASE RATE" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of the Federal Funds Effective Rate for such day plus 1/2% per annum. "BASE RATE LOANS" means Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. "BUSINESS DAY" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Base Rate, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago, New York and Los Angeles for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and Los Angeles for the conduct of substantially all of their commercial lending activities. "CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. 4 "CASH" means money, currency or a credit balance in a Deposit Account. "CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more than 270 days from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank (including a U.S. branch of a foreign bank) that is a member of the Federal Reserve and has a combined capital and surplus and undivided profits of at least $500,000,000); (v) repurchase agreements which (a) are entered into with any entity referred to in clauses (iii) or (iv) above or any other financial institution whose unsecured long-term debt (or the unsecured long-term debt of whose holding company) is rated at least A- or better by S&P or A3 or better by Moody's and maturing not more than one year after such time; and (b) are secured by a fully perfected security interest in securities of a type referred to in clauses (i) or (ii) above and which have a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such counterparty entity with whom such repurchase agreement has been entered into; (vi) short-term tax exempt securities that are rated not lower than MIG-1/1+ or either Moody's or S&P with provisions for liquidity or maturity accommodations of 183 days or less; (vii) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) through (vi) and as to which withdrawals are permitted at least every 90 days and (viii) in the case of any Subsidiary of the Company organized or having its principal place of business outside the United States, investments denominated in the currency of the jurisdiction in which such Subsidiary is organized or has its principal place of business which are similar to the items specified in clauses (i) through (vii) above. "CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the form of EXHIBIT XIII annexed hereto delivered by a Lender to Administrative Agent pursuant to subsection 2.7B(iv). "CHANGE IN CONTROL" means (i) the failure of Parent at any time to own, directly or indirectly, free and clear of all Liens and encumbrances (other than Liens created under the Loan Documents and Liens described in clauses (i) and (iv) of the definition of "Permitted Encumbrances"), all right, title and interest in 100% of the capital stock of the Company; (ii) the failure of the DLJMB and the Affiliates of any entity included in the definition of "DLJMB" to own at least 51% (on a fully diluted basis) of the economic and voting interest in the voting stock of Parent; (iii) the failure of DLJMB and the Affiliates of any entity included in the definition of "DLJMB" at any time to have the right to designate or nominate at least 51% of the Board of Directors of Parent; or (iv) the occurrence of a "Change of Control" as defined under any 5 agreement governing any Subordinated Indebtedness issued by Company or the PIK Preferred Stock or PIK Notes issued by Parent. "CLOSING DATE" means the date on or before October 31, 1998 on which the Tranche B Term Loans are made. "CO" means the United States Copyright Office or any successor or substitute office in which filings are necessary or, in the opinion of Administrative Agent, desirable in order to create or perfect Liens on any IP Collateral. "COLLATERAL" means, collectively, all of the real, personal and mixed property (including capital stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations. "COLLATERAL ACCOUNT" has the meaning assigned to that term in the Collateral Account Agreement. "COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement executed and delivered by Company and Administrative Agent on the Closing Date, substantially in the form of EXHIBIT XXIII annexed hereto, as such Collateral Account Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "COLLATERAL DOCUMENTS" means (i) prior to the consummation of the Merger and the Second Merger, the Parent Pledge Agreement, the Finance Co. Pledge Agreement, the Collateral Account Agreement and the Investment Account Agreement and (ii) from and after the consummation of the Merger and the Second Merger, the Parent Pledge Agreement, the Security Agreement, the DAH Pledge Agreement, the Subsidiary Pledge Agreements and the Mortgages, and all other instruments or documents delivered by any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to Administrative Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of that Loan Party as security for the Obligations. "COMMITMENTS" means the commitments of Lenders to make Loans as set forth in subsection 2.1A. "COMPANY" means (i) until the consummation of the Second Merger, Finance Co. and (ii) upon and after the consummation of the Second Merger, DAH. "COMPANY EXCESS CASH FLOW AMOUNT" means, at any date, the portion of Consolidated Excess Cash Flow for each Fiscal Year ending prior to such date (commencing with the Fiscal Year Ending December 31, 1999) not required to be applied to prepay the Loans in accordance with subsection 2.4B(iii)(d). "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of EXHIBIT IX annexed hereto delivered to Agents and Lenders by Company pursuant to subsection 6.1(iii). "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the sum of the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and 6 including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) by Company and its Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Company and its Subsidiaries; PROVIDED that Consolidated Capital Expenditures shall not include any such expenditures (x) made from the proceeds of (i) Net Insurance/Condemnation Proceeds as permitted under Section 7.7(ix) or (ii) proceeds from Assets Sales permitted pursuant to Section 7.7(xi) or (iii) proceeds from assets dispositions permitted by subsection 7.7(iii) , or dispositions of assets excluded from the definition of Asset Sales pursuant to clause (c) of the definition of "Asset Sale" or (y) that constitute an Investment made under subsection 7.3 (other than subsection 7.3(vii)). "CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the total assets of Company and its Subsidiaries on a consolidated basis which may properly be classified as current assets in conformity with GAAP, excluding Cash and Cash Equivalents. "CONSOLIDATED CURRENT LIABILITIES" means, as at any date of determination, the total liabilities of Company and its Subsidiaries on a consolidated basis which may properly be classified as current liabilities in conformity with GAAP, excluding the current portion of any Indebtedness that by its terms or by the terms of any instrument or agreement relating thereto matures more than one year from, or is renewable or extendable at the option of Company or a Subsidiary from, the date of creation thereof. "CONSOLIDATED EBITDA" means, for any period, subject to subsections 1.2(b) and 1.2(c), the sum (without duplication) of the amounts for such period of (i) Consolidated Net Income, (ii) any amount deducted on account of minority interests in determining Consolidated Net Income, (iii) Consolidated Interest Expense, (iv) any non-capitalized transaction costs incurred in connection with actual or proposed financings, acquisitions or divestitures (including, but not limited to, financing and refinancing fees and costs incurred in connection with the Transaction), (v) all amounts deducted on account of income taxes in determining Consolidated Net Income, (vi) total depreciation expense, (vii) total amortization expense, (viii) the amount deducted in determining Consolidated Net Income representing any net loss (or less any net gain) realized in connection with any sale, lease, conveyance or other disposition of any asset (other than in the ordinary course of business and other than from Company or any of its Subsidiaries to Company or any of its Subsidiaries), (ix) the amount deducted in determining Consolidated Net Income representing any extraordinary or non-recurring loss, (x) foreign currency translation and transaction losses (or minus foreign currency translation and transaction gains) and (xi) any other non-cash items reducing Consolidated Net Income LESS (a) other items increasing Consolidated Net Income constituting extraordinary gains and (b) Restricted Junior Payments of the type referred to in clause (iii)(x) of Subsection 7.5 made during such period, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. "CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if positive) equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated EBITDA and (b) the Consolidated Working Capital Adjustment MINUS (ii) the sum, without duplication, of the amounts for such period of (a) mandatory and scheduled repayments of the Loans and scheduled, mandatory and optional repayments of other Consolidated Total Debt (excluding 7 repayments of Working Capital Loans and Acquisition Loans except to the extent the Working Capital Loan Commitments or the Acquisition Loan Commitments, as the case may be, are permanently reduced in connection with such repayments) in each case to the extent actually made during such period, (b) Consolidated Capital Expenditures paid in cash (without duplication, net of any proceeds of any related financings with respect to such expenditures), (c) Consolidated Interest Expense paid in cash, (d) the amount of taxes based on income of Company and its Subsidiaries paid or payable in cash during such period, (e) the amount paid for Permitted Acquisitions permitted and actually made under subsection 7.7(viii) and Investments permitted and actually made under subsection 7.3(xiii) but only to extent paid in cash from Company's or its Subsidiaries cash balances; (f) any payments with respect to Earn-Outs actually paid during such period, (g) gains on any sale, lease, conveyance, or other disposition of any asset (other than in the ordinary course of business), and (h) any distributions with respect to minority interests made during such period. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, at the end of any Fiscal Quarter, subject to subsections 1.2(b) and 1.2(c), the ratio computed for the period consisting of such Fiscal Quarter and each of the three immediately preceding Fiscal Quarters of Consolidated EBITDA to Consolidated Fixed Charges; PROVIDED that with respect to Consolidated Fixed Charges for the Fiscal Quarters ending December 31, 1998, March 31, 1999 and June 30, 1999, Consolidated Interest Expense and scheduled principal payments on Consolidated Total Debt shall be determined on an Annualized basis. "CONSOLIDATED FIXED CHARGES" means, for any period, the sum (without duplication) of the amounts for such period of (i) the cash portion of Consolidated Interest Expense (net of cash interest income), (ii) taxes based on income actually paid or payable, (iii) scheduled principal payments in respect of Consolidated Total Debt, (iv) Consolidated Capital Expenditures actually made pursuant to clause (i) of subsection 7.8 (excluding the portion of such Consolidated Capital Expenditures constituting Indebtedness under a Capital Lease or purchase money Indebtedness and excluding the portion of such Consolidated Capital Expenditures made pursuant to clause (i) of subsection 7.8 in reliance on the $10,000,000 incremental basket provided therein), and (v) dividend payments made by Company to Parent to enable Parent to pay cash interest or dividends on the Parent P-I-K Securities pursuant to subsection 7.5(iv), all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. "CONSOLIDATED INTEREST COVERAGE RATIO" means, at the end of any Fiscal Quarter, subject to subsections 1.2(b) and 1.2(c), the ratio computed for the period consisting of such Fiscal Quarter and each of the three immediately preceding Fiscal Quarters of Consolidated EBITDA to the cash portion of Consolidated Interest Expense other than commitment fees to the extent included therein (net of cash interest income); PROVIDED that for the Fiscal Quarters ending December 31, 1998, March 31, 1999 and June 30, 1999, Consolidated Interest Expense shall be determined on an Annualized basis. "CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net 8 costs under Interest Rate Agreements determined in accordance with GAAP, but excluding, to the extent included in such total interest expense, up-front fees and expenses and the amortization of all deferred financing costs. "CONSOLIDATED LEVERAGE RATIO" means, at the end of any Fiscal Quarter, subject to subsections 1.2(b) and 1.2(c), the ratio of (a) Consolidated Total Debt (less Cash and Cash Equivalents) as of the last day of such Fiscal Quarter to (b) Consolidated EBITDA for the consecutive four Fiscal Quarters ending on the last day of such Fiscal Quarter. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP. "CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness and Contingent Obligations with respect to letters of credit (other than letters of credit issued in connection with trade payables) of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED WORKING CAPITAL" means, as at any date of determination, the excess (or deficit) of Consolidated Current Assets over Consolidated Current Liabilities. "CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period. "CONTINGENT OBLIGATION", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such Indebtedness of another that such Indebtedness of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such Indebtedness will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Hedge Agreements. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to 9 the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "CORPORATE BASE RATE" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "DAH" means DeCrane Aircraft Holdings, Inc., a Delaware corporation. "DAH COMMON STOCK" means the common stock, $0.01 par value, of DAH. "DAH PLEDGE AGREEMENT" means the DAH Pledge Agreement executed and delivered by DAH on the Merger Date with respect to DAH's Subsidiaries on the Merger Date, substantially in the form of EXHIBIT XV annexed hereto, as such DAH Pledge Agreement may thereafter be amended, supplemented or otherwise modified from time to time. "DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "DLJ" has the meaning assigned to that term in the introduction to this Agreement. "DLJMB" means DLJ Merchant Banking Partners II, L.P., certain affiliated funds and entities described in the Tender Offer Materials and shall include Global Technology Partners, L.L.C. "DOLLARS" and the sign "$" mean the lawful money of the United States of America. "DOMESTIC SUBSIDIARY" means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia. "EARN-OUTS" means any obligations by Company or any of its Subsidiaries to pay any amounts constituting the payment of deferred purchase price with respect to any acquisition of a business (whether through the purchase of assets or shares of capital stock), the amount of which payments is calculated on the basis of, or by reference to, bona fide financial or other operating performance of such business or specified portion thereof or any other similar arrangement. "ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof; (ii) a savings and loan association or savings bank organized 10 under the laws of the United States or any state thereof; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof; PROVIDED that (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity which extends credit or buys or invests in loans as one of its businesses including insurance companies, mutual funds and lease financing companies; and (B) any Lender, any Affiliate of any Lender and any Affiliated Fund of any Lender; PROVIDED that no Affiliate of Company shall be an Eligible Assignee. "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by Company, any of its Subsidiaries or any of their respective ERISA Affiliates. "ENVIRONMENTAL CLAIM" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive, by any governmental authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, (ii) in connection with any Hazardous Materials or any actual or alleged Hazardous Materials Activity, or (iii) in connection with any actual or alleged damage, injury, threat or harm to natural resources or the environment. "ENVIRONMENTAL LAWS" means any and all current or future statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of governmental authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) the effect of the environment on human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any Facility, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 ET SEQ.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), the Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 ET SEQ.), the Oil Pollution Act (33 U.S.C. Section 2701 ET SEQ.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 ET SEQ.), each as amended or supplemented, any analogous present or future state or local statutes or laws, and any regulations promulgated pursuant to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA AFFILIATE" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in 11 clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Company or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Company or such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Company or such Subsidiary and with respect to liabilities arising after such period for which Company or such Subsidiary could be liable under the Internal Revenue Code or ERISA. "ERISA EVENT" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which could reasonably constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could reasonably give rise to the imposition on Company, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. 12 "EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan for the relevant Interest Period, the rate determined by Administrative Agent to be the rate at which First Chicago offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of First Chicago's relevant Eurodollar Rate Loan and having a maturity equal to such Interest Period. "EURODOLLAR RATE LOANS" means Loans bearing interest at rates determined by reference to the Adjusted Eurodollar Rate as provided in subsection 2.2A. "EVENT OF DEFAULT" means each of the events set forth in Section 8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXCLUDED EQUITY PROCEEDS" means any proceeds received by Parent, Company or any of its Subsidiaries from the issuance or sale or exercise of their respective equity Securities, in each case pursuant to any such sale or issuance or exercise constituting or resulting from (i) capital contributions to Company, or equity Securities issuances by Parent, Company or any of its Subsidiaries, including without limitation, the issuance of the PIK Preferred Stock and any such issuances as payment of accrued dividends on the PIK Preferred Stock (excluding any such contributions or issuance resulting from a public offering or a widely distributed private offering of common equity exempted from the registration requirements of Section 5 of the Securities Act of 1933, as amended ("Section 5") other than any such issuances (A) the proceeds of which are required to be and are applied to refinance the Senior Subordinated Bridge Notes then outstanding, in accordance with their terms or (B) resulting from or in connection with any resale by DLJMB of the PIK Preferred Stock, or any subsequent registration thereof under Section 5), (ii) any subscription agreements, incentive plan or similar arrangements with any officer, employee or director of Parent, the Company or any of its Subsidiaries, (iii) any loan made by the Company or any of its Subsidiaries pursuant to Section 7.3(xi), (iv) the sale of any equity Securities of Parent to any officer, director or employee of Parent, the Company or any of their Subsidiaries; PROVIDED such proceeds do not exceed $5,000,000 in the aggregate, (v) the exercise of any options or warrants issued to any officer, employee or director of Parent, the Company or any of its Subsidiaries or to any purchasers of the PIK Preferred Stock, or (vi) issuances by any Subsidiary of Company to Company or any other Subsidiary of Company or by Company to Parent or any Subsidiary of Company. "EXISTING DAH DEBT" means the Loan and Security Agreement dated as of April 15, 1997, as amended, among DAH, Bank of America Illinois, as Agent and the lenders signatory thereto. "FACILITIES" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Company or any of its Subsidiaries or any of their respective predecessors. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the 13 Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 A.M. (Chicago time) on such day on such transactions received by Administrative Agent from three Federal funds brokers of recognized standing selected by Administrative Agent in its sole discretion. "FINANCE CO." means DeCrane Finance Co., a Delaware corporation. "FINANCE CO. PLEDGE AGREEMENT" means the Finance Co. Pledge Agreement executed and delivered by Finance Co. on the Closing Date with respect to Acquisition Co, substantially in the form of EXHIBIT XIV annexed hereto, as such Finance Co. Pledge Agreement may be amended, supplemented or otherwise modified from time to time. "FINANCIAL PLAN" has the meaning assigned to that term in subsection 6.1(xi). "FIRST CHICAGO" means The First National Bank of Chicago in its individual capacity, and its successors. "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien has priority over any other Lien on such Collateral (other than Permitted Encumbrances and other Liens permitted pursuant to subsections 7.2A(iii), (iv), (vi), (vii), (viii), (ix) and (to the extent arising in connection with Capital Leases and purchase money Indebtedness and applying to the assets whose acquisition or improvement was financed therewith) (x) and (ii) such Lien is the only Lien (other than Permitted Encumbrances and Liens permitted pursuant to subsection 7.2A) to which such Collateral is subject. "FISCAL QUARTER" means a fiscal quarter of any Fiscal Year. "FISCAL YEAR" means the fiscal year of Company and its Subsidiaries ending on December 31 of each calendar year. "FLOOD HAZARD PROPERTY" means a Mortgaged Property located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic Subsidiary. "FUNDING AND PAYMENT OFFICE" means (i) the office of Administrative Agent and Swing Line Lender located at One First National Plaza, Chicago, Illinois, 60670 or (ii) such other office of Administrative Agent and Swing Line Lender as may from time to time hereafter be designated as such in a written notice delivered by Administrative Agent and Swing Line Lender to Company and each Lender. "FUNDING DATE" means the date of the funding of a Loan. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, generally accepted accounting principles set forth in opinions and 14 pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, in each case as the same are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "GUARANTIES" means the Parent Guaranty, the Acquisition Co. Guaranty and the Subsidiary Guaranty. "HAZARDOUS MATERIALS" means (i) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) any asbestos-containing materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls; (ix) pesticides; and (x) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons at the Facilities or to the indoor or outdoor environment. "HAZARDOUS MATERIALS ACTIVITY" means any activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, Release, discharge, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively. "IMMATERIAL SUBSIDIARY" means each Subsidiary of Company that (a) accounted for no more than 3% of the consolidated gross revenues of Company and its Subsidiaries for the most recently completed Fiscal Quarter with respect to which, pursuant to Section 6.1(i) or 6.1(ii), financial statements have been, or are required to have been, delivered by Company on or before the date as of which any such determination is made, as reflected in such financial statements; and (b) has assets which represent no more than 3% of the consolidated gross assets of Company and its Subsidiaries as of the last day of the most recently completed Fiscal Quarter with respect to which, pursuant to Section 6.1(i) or 6.1(ii), financial statements have been, or are required to 15 have been, delivered by Company on or before the date as of which any such determination is made, as reflected in such financial statements. "IMPERMISSIBLE QUALIFICATION" means, relative to the opinion or certification of any independent public accountant as to any financial statement of Company, any qualification or exception to such opinion or certification (i) which is of a "going concern" or similar nature, (ii) which relates to the limited scope of examination of matters relevant to such financial statement (except, in the case of matters relating to any acquired business or assets, in respect of the period prior to the acquisition by Company of such business or asset), or (iii) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause Company to be in default of any of its obligations under Section 7.6. "INDEBTEDNESS", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA), which purchase price is (a) except in the case of accounts payable arising in the ordinary course of business, due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument (including in respect of Earn-Outs, but solely to the extent included as liabilities in accordance with GAAP), and (v) all obligations of the types referred to in clauses (i) through (iv) above, secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Obligations under Interest Rate Agreements and Currency Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. "INDEMNITEE" has the meaning assigned to that term in subsection 10.3. "INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of the business of Company and its Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Company and its Subsidiaries, taken as a whole. "INTERCOMPANY NOTE RELATING TO TRANCHE A TERM LOANS AND WORKING CAPITAL LOANS" means the Promissory Note executed by DAH in favor of Finance Co. on the Closing Date, substantially in the form of EXHIBIT XXVIII annexed hereto, evidencing the borrowings made by DAH from Finance Co. from time to time (other than borrowings evidenced by the Intercompany Note Relating to Tranche B Term Loans), as such Intercompany Note may be amended, supplemented or otherwise modified from time to time. "INTERCOMPANY NOTE RELATING TO TRANCHE B TERM LOANS" means the Promissory Note executed by DAH in favor of Finance Co. on the Closing Date, substantially in the form of EXHIBIT XXIV annexed hereto, evidencing the borrowings made by DAH from Finance Co. from 16 the proceeds of Tranche B Term Loans, as such Intercompany Note Relating to Tranche B Term Loans may be amended, supplemented or otherwise modified from time to time. "INTERCOMPANY NOTES" means, collectively, the Intercompany Note Relating to Tranche A Term Loans and Working Capital Loans and the Intercompany Note Relating to Tranche B Term Loans. "INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan, each Quarterly Date, commencing on the first such Quarterly Date to occur after the Closing Date, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; PROVIDED that in the case of each Interest Period of longer than three months "Interest Payment Date" shall also include each date that is three months, or an multiple thereof, after the commencement of such Interest Period. "INTEREST PERIOD" has the meaning assigned to that term in subsection 2.2B. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by Company or any of its Subsidiaries of, or of a beneficial interest in, any Securities of any other Person (including any Subsidiary of Company), (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Company from any Person other than Company or any of its Subsidiaries, of any equity Securities of such Subsidiary, or (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Company or any of its Subsidiaries to any other Person (other than a wholly-owned Subsidiary of Company). The amount of any Investment shall be the original cost of such Investment PLUS the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "INVESTMENT ACCOUNT AGREEMENT" means the Investment Account Agreement executed and delivered by Company and Administrative Agent on the Closing Date, substantially in the form of EXHIBIT XXVII annexed hereto, as such Investment Account Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "INVESTMENT ACCOUNTS" means the "Investments Accounts" as defined in the Investment Account Agreement. 17 "IP COLLATERAL" means, collectively, the Intellectual Property Collateral under the Security Agreement. "ISSUING LENDER" means, First Chicago in its capacity as issuer of a Letter of Credit or, if First Chicago declines to issue such Letter of Credit in accordance with subsection 3.1B(ii), then any other Working Capital Lender that at the request of Company agrees to issue a Letter of Credit pursuant to subsection 3.1B(ii). "LC REFUNDING LOAN" has the meaning assigned to that term in subsection 2.1B. "LEASEHOLD PROPERTY" means any leasehold interest of any Loan Party as lessee under any lease of real property. "LENDER" and "LENDERS" means the persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall include Swing Line Lender unless the context otherwise requires. "LETTER OF CREDIT" or "LETTERS OF CREDIT" means Letters of Credit issued or to be issued by Issuing Lenders for the account of Company pursuant to subsection 3.1. "LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is available for drawing under all Letters of Credit then outstanding (whether or not any conditions to any such drawing can then be met), PLUS (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Lenders and not theretofore reimbursed by Company. "LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "LOAN" or "LOANS" means one or more of the Tranche A Term Loans, Tranche B Term Loans, Working Capital Loans, Swing Line Loans or Acquisition Loans or any combination thereof. "LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by Company in favor of an Issuing Lender relating to, the Letters of Credit), the Guaranties and the Collateral Documents. "LOAN PARTY" means each of Parent, Acquisition Co., Company and any of Company's Subsidiaries from time to time executing a Loan Document, and "LOAN PARTIES" means all such Persons, collectively. "MARGIN DETERMINATION CERTIFICATE" means an Officer's Certificate of Company delivered pursuant to subsection 6.1(iv) setting forth in reasonable detail, and calculating in accordance with subsections 1.2(b) and 1.2(c), the Consolidated Leverage Ratio for the 18 four-Fiscal Quarter period ending as of the last day of the Fiscal Quarter with respect to which such Officer's Certificate is delivered. "MARGIN STOCK" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the business, operations, properties, assets, financial condition or prospects of Company and its Subsidiaries taken as a whole or of DAH and its Subsidiaries taken as a whole or (ii) the material impairment of the ability of the Loan Parties to perform, or of Agents or Lenders to enforce, the Obligations. "MATERIAL CONTRACT" means any contract or other arrangement to which Company or any of its Subsidiaries is a party (other than the Loan Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect. "MERGER" means the merger of Acquisition Co. with and into DAH pursuant to the Merger Agreement. "MERGER AGREEMENT" means the Agreement and Plan of Merger dated as of July 16, 1998 between Acquisition Co. and DAH, as in effect on the date hereof and as such agreement may be amended from time to time to the extent permitted under subsection 7.15. "MERGER DATE" means the date upon which the Merger and the Second Merger are consummated. "MERGER DATE FEE MORTGAGED PROPERTY" means each owned property listed on Schedule 6.8. "MERGER DATE LEASEHOLD MORTGAGED PROPERTY" means each leased property listed on Schedule 6.8 to the extent that DAH or the applicable Subsidiary is able to obtain the agreement of the applicable lessor referred to in subsection 6.8C. "MERGER DATE MORTGAGED PROPERTY" means, collectively, the Merger Date Fee Mortgaged Properties and the Merger Date Leasehold Mortgaged Properties. "MINIMUM SHARES" means, at the date of determination, a majority of the total number of shares of DAH Common Stock outstanding on a fully diluted basis but not less than a sufficient number of such shares to permit Acquisition Co. acting alone to cause the Merger to be approved by the stockholders of DAH. "MORTGAGE" means (i) a security instrument (whether designated as a deed of trust or a mortgage or by any similar title) executed and delivered by any Loan Party, substantially in such form as may be reasonably approved by Agents in their sole discretion, in each case with such changes thereto as may be recommended by Administrative Agent's local counsel based on local laws or customary local mortgage or deed of trust practices, or (ii) at the option of Agents, in the case of any future Mortgaged Property, an amendment to an existing Mortgage or a new Mortgage, in form satisfactory to Agents, adding such future Mortgaged Property to the Real Property Assets encumbered by such existing Mortgage, in either case as such security 19 instrument or amendment may be amended, supplemented or otherwise modified from time to time. "MORTGAGES" means all such instruments, including any future Mortgages, collectively. "MORTGAGED PROPERTY" means a Merger Date Mortgaged Property (as defined in subsection 6.13) or a property mortgaged in the future pursuant to subsection 6.8. "MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale, net of any bona fide direct costs incurred in connection with such Asset Sale, including (i) income taxes and all other governmental costs and expenses reasonably estimated to be actually payable in connection with such Asset Sale (including, in the event of any Asset Sale with respect to non-U.S. assets, any such taxes, costs, and expenses resulting from repatriating such proceeds to the U.S.), (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale, (iii) all reasonable and customary fees and expenses with respect to legal, investment banking, brokerage, accounting and other professional fees, sales commissions and disbursements, (iv) reserves for purchase price adjustments and retained liabilities reasonably expected to be payable by Company and its Subsidiaries in cash in connection therewith and (v) solely with respect to any Asset Sale consummated by a Subsidiary, the pro rata portion of any such Cash payments required to be distributed to any shareholders of such Subsidiary or any other Subsidiary that, directly or indirectly, holds the capital stock of such Subsidiary (but excluding in each case Company and its Subsidiaries). "NET INSURANCE/CONDEMNATION PROCEEDS" means any Cash payments or proceeds received by Company or any of its Subsidiaries (i) under any casualty insurance policy in respect of a covered loss thereunder or (ii) as a result of the taking of any assets of Company or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, in each case net of any actual and reasonable documented costs incurred by Company or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Company or such Subsidiary in respect thereof, but excluding (x) any such payments or proceeds thereunder required to be paid to a creditor (other than the holders of the Loans) secured by such assets that is required to be repaid under the terms thereof as a result of the relevant covered loss or taking, (y) any income taxes and all other taxes, governmental costs and expenses reasonably estimated to be actually payable in connection with the receipt of such Net Insurance/Condemnation Proceeds and (z) solely with respect to any Net Insurance/Condemnation Proceeds received by a Subsidiary, the pro rata portion of any such Cash payments required to be distributed to any shareholders of such Subsidiary or any other Subsidiary that, directly or indirectly, holds the capital stock of such Subsidiary (but excluding in each case Company and its Subsidiaries). 20 "NET SECURITIES PROCEEDS " has the meaning set forth in subsection 2.4B(iii)(c). "NON-CONSENTING LENDER" means any Lender that, in response to any request by Company or Administrative Agent to a departure from, waiver of or amendment to any provision of any Loan Document that requires the agreement of all Lenders or all Lenders holding Commitments or Loans (and , if applicable, participations in letters of credit) of a particular type, which departure , waiver or amendment received the consent of the Required Lenders or the holders of a majority of the Commitments or (if the applicable Commitments of such type shall have expired or been terminated) outstanding Loans of such type, and, if applicable, participations in letters of credit, as the case may be, shall not have given its consent to such departure, waiver or amendment. "NON-FUNDING LENDER" means a Lender that shall have failed to fund any Loan hereunder that it was required to have funded in accordance with the terms hereof, which Loan was included in any borrowings in respect of which a majority of the aggregate amount of all Loans included in such borrowings were funded by the Lenders party hereto (other than any Lender not required to do so as a result of the provisions of Section 2.6C or 2.6D being applicable to such Lender with respect to such borrowing). "NON-WHOLLY-OWNED SUBSIDIARY" means any Subsidiary of Company that is not a Wholly-Owned Subsidiary. "NOTES" means one or more of the Tranche A Term Notes, Tranche B Term Notes, Working Capital Notes, Swing Line Notes or Acquisition Notes or any combination thereof. "NOTICE OF BORROWING" means a notice substantially in the form of EXHIBIT I annexed hereto delivered by Company to Administrative Agent pursuant to subsection 2.1B with respect to a proposed borrowing. "NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the form of EXHIBIT II annexed hereto delivered by Company to Administrative Agent pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice substantially in the form of EXHIBIT III annexed hereto delivered by Company to Administrative Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "OBLIGATIONS" means all obligations of every nature of each Loan Party from time to time owed to Agents, Lenders or any of them under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnification or otherwise. "OFFICER'S CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chief executive officer, president, treasurer or its chief financial officer (or if there is no chief financial officer, its chief accounting officer). 21 "OPERATING LEASE" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease in accordance with GAAP other than any such lease under which that Person is the lessor. "PARENT" means DeCrane Holdings Co., a Delaware corporation. "PARENT GUARANTY" means the Parent Guaranty executed and delivered by Parent on the Closing Date, substantially in the form of EXHIBIT XXI annexed hereto, as such Parent Guaranty may be amended, supplemented or otherwise modified from time to time. "PARENT P-I-K SECURITIES" means the PIK Notes and the PIK Preferred Stock. "PARENT PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered by Parent on the Closing Date, substantially in the form of EXHIBIT XX annexed hereto, as such Parent Pledge Agreement may be amended, supplemented or otherwise modified from time to time. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "PERMITTED ACQUISITION" means the acquisition of a business (whether through the purchase of assets or of shares of capital stock) by Company or one of its Subsidiaries (w) which is in a line of business similar or related to the lines of business of Company and its Subsidiaries, (x) for total consideration (including without limitation, cash purchase price, deferred or financed purchase price and the assumption of Indebtedness, including Assumed Indebtedness, and other liabilities) of not more than $25,000,000 for any single acquisition or series of related acquisitions and, which consideration, when aggregated with the consideration for all other Permitted Acquisitions, does not exceed $50,000,000; PROVIDED that such aggregate total consideration for Permitted Acquisitions of or by Subsidiaries that are not Subsidiary Guarantors shall not exceed an aggregate of $30,000,000 plus the Company Excess Cash Flow Amount; AND PROVIDED FURTHER that such aggregate total consideration for Permitted Acquisitions of or by Non-Wholly-Owned Subsidiaries that are not Subsidiary Guarantors shall not exceed an aggregate of $10,000,000 plus the Company Excess Cash Flow Amount, (y) at a time at which no Event of Default or Potential Event of Default shall exist or shall occur as a result of giving effect to such proposed acquisition, and (z) after giving effect to such acquisition, including without limitation giving effect to the incurrence or assumption of any Indebtedness or any other costs and expenditures or the making of any distributions and other payments in connection with or otherwise relating to such Permitted Acquisition, Company shall be in pro forma compliance with each of the financial covenants set forth in subsection 7.6 for the immediately preceding four Fiscal Quarter period prior to such date of determination. 22 "PERMITTED ACQUISITION COMPLIANCE CERTIFICATE" means an Officer's Certificate substantially in the form of EXHIBIT XXVI annexed hereto delivered to Administrative Agent by Company pursuant to subsection 7.7(vii). "PERMITTED ENCUMBRANCES" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; (ii) Liens of landlords (except as may be waived or released as more particularly described in subsection 6.8), Liens of banks and rights of set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen, contractors and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 30 days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) leases or subleases granted to third parties and not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; (vi) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not materially detract from the value or impair the use by the Company or any of its Subsidiaries in the ordinary conduct of the business of Company or any of its Subsidiaries; (vii) any (a) interest or title of a lessor or sublessor under any permitted lease, (b) restriction or encumbrance to which the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b); (viii) Liens arising from filing UCC financing statements relating solely to leases not prohibited by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; 23 (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Company and its Subsidiaries; (xii) licenses of patents, trademarks and other intellectual property rights granted by Company or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Company or such Subsidiary; and (xiii) the general and special exceptions approved by Agents, which exceptions appear on the mortgagee title insurance policies with respect to the owned and leased properties to be encumbered by a Mortgage, pursuant to subsections 6.8B, 6.8C and 6.13. "PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments (whether federal, state or local, domestic or foreign, and including political subdivisions thereof) and agencies or other administrative or regulatory bodies thereof. "PIK NOTES" means Senior Pay-in-Kind Notes, if any, issued by Parent, in exchange for PIK Preferred Stock which notes shall (i) provide for the payment of interest by accretion of the original face amount thereof or by the issuance of additional PIK Notes for a period of not less than five years after the Closing Date, (ii) not provide for any scheduled redemptions or prepayments or any sinking fund installment payments or maturities prior to a date which is seven and one-half years after the Closing Date, and (iii) have terms and conditions not less favorable to Parent and Lenders than those set forth in the draft "Description of Exchange Debentures" dated August 27, 1998, a copy of which has been distributed to the Lenders. "PIK PREFERRED STOCK" means Pay-in-Kind Preferred Stock issued by Parent, the face amount thereof to be issued on the Closing date being not less than $34,000,000, providing for the payment of dividends thereon by the issuance of additional shares of such Pay-in-Kind Preferred Stock or by accretion of the original face amount thereof for a period of not less than five years from the Closing Date, which Pay-in-Kind Preferred Stock shall be unsecured and unguaranteed, shall not provide for any scheduled redemptions or prepayments prior to a date which is seven-and-a-half years after the Closing Date, as amended from time to time to the extent permitted under the Parent Guaranty. "PLEDGED COLLATERAL" means, collectively, at any time, the "Pledged Collateral" as defined in any of the Finance Co. Pledge Agreement, the DAH Pledge Agreement, the Parent Pledge Agreement and the Subsidiary Pledge Agreements as is a Collateral Document at such time. 24 "POTENTIAL EVENT OF DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "PROPERTY REINVESTMENT APPLICATION" means the application of Net Asset Sale Proceeds or Net Insurance/Condemnation Proceeds, as the case may be, to the acquisition by Company or its Subsidiaries of tangible or intangible property or assets (other than property or assets that constitute current assets under GAAP, unless the acquisition thereof is incidental to the acquisition of a materially greater amount of non-current assets) that is to be used in the business of Company and its Subsidiaries. "PRO RATA SHARE" means (i) with respect to all payments, computations and other matters relating to the Tranche A Term Loan Commitment or the Tranche A Term Loan of any Lender, the percentage obtained by DIVIDING (x) the Tranche A Term Loan Exposure of that Lender BY (y) the aggregate Tranche A Term Loan Exposure of all Lenders, (ii) with respect to all payments, computations and other matters relating to the Tranche B Term Loan Commitment or the Tranche B Term Loan of any Lender, the percentage obtained by DIVIDING (x) the Tranche B Term Loan Exposure of that Lender BY (y) the aggregate Tranche B Term Loan Exposure of all Lenders, (iii) with respect to all payments, computations and other matters relating to the Working Capital Loan Commitment or the Working Capital Loans of any Lender or any Letters of Credit issued or participations therein purchased by any Lender or any participations in any Swing Line Loans purchased or deemed purchased by any Working Capital Lender, the percentage obtained by DIVIDING (x) the Working Capital Loan Exposure of that Lender BY (y) the aggregate Working Capital Loan Exposure of all Lenders, (iv) with respect to all payments, computations and other matters relating to the Acquisition Loan Commitment or the Acquisition Loans of any Lender, the percentage obtained by DIVIDING (x) the Acquisition Loan Exposure of that Acquisition Lender BY (y) the aggregate Acquisition Loan Exposure of all Lenders, and (v) for all other purposes with respect to each Lender, the percentage obtained by DIVIDING (x) the sum of the Tranche A Term Loan Exposure of that Lender PLUS the Tranche B Term Loan Exposure of that Lender PLUS the Working Capital Loan Exposure of that Lender plus the Acquisition Loan Exposure of that Lender BY (y) the sum of the aggregate Tranche A Term Loan Exposure of all Lenders PLUS the aggregate Tranche B Term Loan Exposure of all Lenders PLUS the aggregate Working Capital Loan Exposure of all Lenders PLUS the aggregate Acquisition Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii), (iii) and (iv) of the preceding sentence is set forth opposite the name of that Lender in SCHEDULE 2.1 annexed hereto. "PTO" means the United States Patent and Trademark Office or any successor or substitute office in which filings are necessary or, in the opinion of Administrative Agent, desirable in order to create or perfect Liens on any IP Collateral. "QUARTERLY DATE" means each March 31, June 30, September 30 and December 31. "REAL PROPERTY ASSET" means, at any time of determination, any interest then owned by any Loan Party in any real property. 25 "REFUNDED SWING LINE LOANS" has the meaning assigned to that term in subsection 2.1A(iv). "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REIMBURSEMENT DATE" has the meaning assigned to that term in subsection 3.3B. "RELATED AGREEMENTS" means, collectively, the Intercompany Notes, the Merger Agreement, the Senior Subordinated Bridge Note Agreement, if any, the Senior Subordinated Bridge Notes, if any, any guaranties related thereto and, if and when executed, the Senior Subordinated Note Indenture and the Senior Subordinated Notes and any guaranties related to any of the foregoing, the Parent PIK Securities and the agreements or other instruments pursuant to which the Parent PIK Securities have been issued or are governed, including without limitation any note purchase agreement, any indenture or any certificate of designation and all other agreements or instruments delivered pursuant to or in connection with any of the foregoing including any registration rights agreement. "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the movement of any Hazardous Materials through the air, soil, surface water or groundwater. "REQUISITE LENDERS" means on any date, Lenders having or holding more than 50% of the sum of (i) the aggregate Tranche A Term Loan Exposure of all Lenders PLUS (ii) the aggregate Tranche B Term Loan Exposure of all Lenders PLUS (iii) the aggregate Working Capital Loan Exposure of all Lenders PLUS (iv) the aggregate Acquisition Loan Exposure of all Lenders, in each case on such date. "RESERVE REQUIREMENT" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "RESTRICTED JUNIOR PAYMENT" means (i) any distribution, direct or indirect, on account of any class of stock of Company now or hereafter outstanding, except a distribution payable solely in shares of that class or a junior class of stock payable solely to holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any class of stock of Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "SECOND MERGER" means the merger of Finance Co. with and into DAH. 26 "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SECURITY AGREEMENT" means the Security Agreement executed and delivered on the Merger Date by Company and each then existing Subsidiary Guarantor on the Merger Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.7, substantially in the form of EXHIBIT XVI annexed hereto, as such Security Agreement may thereafter be amended, supplemented or otherwise modified from time to time. "SENIOR SUBORDINATED BRIDGE NOTE AGREEMENT" means that certain Securities Purchase Agreement, if any, pursuant to which the Senior Subordinated Bridge Notes, if any, are issued, as in effect on the date of execution of this Agreement and as such agreement may be amended from time to time thereafter to the extent permitted under subsection 7.15. "SENIOR SUBORDINATED BRIDGE NOTES" means the senior subordinated increasing rate notes, if any, issued by Company on the Closing Date, which notes (i) are unsecured and subordinated to the Obligations, (ii) mature at least one year after the Closing Date; and (iii) provide that the maturity thereof will be automatically extended to the date which is seven and one-half years after the Closing Date, subject to satisfaction of certain conditions, as such notes may be amended from time to time thereafter to the extent permitted under subsection 7.15. "SENIOR SUBORDINATED NOTE INDENTURE" means the senior subordinated note indenture, if any, executed by Company and a trustee named thereunder pursuant to which the Senior Subordinated Notes, if any, are issued, as such indenture may be amended from time to time to the extent permitted under subsection 7.15. "SENIOR SUBORDINATED NOTES" means the senior subordinated notes, if any, issued by Company which notes shall be unsecured and shall not provide for any scheduled redemptions or prepayments or any sinking fund installment payments or maturities prior to a date which is seven and one-half years after the Closing Date, which shall have terms and conditions substantially as set forth in the Preliminary Offering Memorandum dated August 12, 1998 or otherwise in form and substance satisfactory to Agents, as such notes may be amended from time to time to the extent permitted under subsection 7.15. "Senior Subordinated Notes" shall also refer to the registered Securities, if any, having the same terms and conditions as the notes described above which are issued by Company in exchange for such notes upon exercise of the customary registration rights accompanying such notes. 27 "SOLVENCY CERTIFICATE" means an Officer's Certificate substantially in the form of EXHIBIT XXII annexed hereto. "SOLVENT" means, with respect to any Person, that as of the date of determination (i) the then fair value of the property of such Person is greater than the total amount of liabilities (including contingent liabilities) of such Person and (ii) the then fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (iii) such Person's capital is not unreasonably small in relation to its business; and (iv) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "STANDBY LETTER OF CREDIT" means any standby letter of credit or similar instrument issued for the purpose of supporting (i) Indebtedness of Company or any of its Subsidiaries, (ii) workers' compensation liabilities of Company or any of its Subsidiaries, (iii) the obligations of third party insurers of Company or any of its Subsidiaries, (iv) obligations with respect to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and (v) performance, payment, deposit, surety or other obligations of Company or any of its Subsidiaries. "SUBORDINATED INDEBTEDNESS" means Indebtedness of Company subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to Agents and Requisite Lenders. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) constituting members of the governing body of such entity is at the time owned and controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. For purposes of this Agreement and the other Loan Documents, any Acquired Controlled Person shall be deemed to be a "Subsidiary" of Company for purposes of subsections 5.1, 5.5, 5.6, 5.7, 5.9, 5.10, 6.4A and the first sentence of 6.4B, 6.6, 6.9, 7.1, 7.2A, 7.2C, 7.3, 7.4, 7.5, 7.7, 7.10, 7.11, 7.12 and 7.14 and, to the extent (and only to the extent) that it relates to any of the foregoing subsections, Section 8. "SUBSIDIARY GUARANTOR" means (i) at any time prior to the consummation of the Merger, Acquisition Co. and (ii) any time upon and after the consummation of the Merger, any Subsidiary of Company that executes and delivers a counterpart of the Subsidiary Guaranty on the Merger Date or from time to time thereafter pursuant to subsection 6.7; PROVIDED that prior to 28 the consummation of the Merger, DAH and the Wholly-Owned Domestic Subsidiaries of DAH shall be deemed to be Subsidiary Guarantors. "SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed and delivered by Acquisition Co. on the Closing Date and by existing Subsidiaries of Company on the Merger Date and to be executed and delivered by additional Subsidiaries of Company from time to time thereafter in accordance with subsection 6.7, substantially in the form of EXHIBIT XVIII annexed hereto, as such Subsidiary Guaranty may hereafter be amended, supplemented or otherwise modified from time to time. "SUBSIDIARY PLEDGE AGREEMENT" means each Subsidiary Pledge Agreement executed and delivered by an existing Subsidiary Guarantor on the Merger Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.7, in each case substantially in the form of EXHIBIT XIX annexed hereto, as such Subsidiary Pledge Agreement may be amended, supplemented or otherwise modified from time to time, and "SUBSIDIARY PLEDGE AGREEMENTS" means all such Subsidiary Pledge Agreements, collectively. "SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to that term in subsection 9.1B. "SWING LINE LENDER" means First Chicago, or any Person serving as a successor Administrative Agent hereunder, in its capacity as Swing Line Lender hereunder. "SWING LINE LOAN COMMITMENT" means the commitment of Swing Line Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(iv). "SWING LINE LOANS" means the Loans made by Swing Line Lender to Company pursuant to subsection 2.1A(iv). "SWING LINE NOTE" means (i) the promissory note of Company issued pursuant to subsection 2.1D(iv) on the Closing Date and (ii) any promissory note issued by Company to any successor Administrative Agent and Swing Line Lender pursuant to the last sentence of subsection 9.3B, in each case substantially in the form of EXHIBIT VII annexed hereto, as it may be amended, supplemented or otherwise modified from time to time. "SYNDICATION AGENT" has the meaning assigned to that term in the introduction to this Agreement. "TAX" or "TAXES" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, imposed by any taxing authority, from or through which payments originate or are made or deemed made by or to the Company, but excluding any income, excise, stamp or franchise taxes and other similar taxes, fees, duties, withholdings or other charges imposed on any Lender or any Agent as a result of a present or former connection between the applicable lending office (or, in the case of any Agent, the office through which it performs any of its actions as Agent) of such Lender or Agent, and the jurisdiction of the governmental authority imposing such tax or any political subdivision or 29 taxing authority thereof or therein (other than any such connection arising solely from such Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or taken any action to enforce, this Agreement or the other Loan Documents). "TENDER OFFER" means the offer by Acquisition Co. to purchase for $23.00 per share in cash all of the outstanding shares of DAH Common Stock pursuant to the Tender Offer Materials. "TENDER OFFER MATERIALS" means the Tender Offer Statement on Schedule 14D-1 filed by Acquisition Co. on July 22, 1998 with the Securities and Exchange Commission pursuant to Section 14(d)(1) of the Exchange Act, together with all exhibits, supplements and amendments thereto entered into on or prior to the date hereof and any amendments entered into after the date hereof that relate only to any extension of time during which the offer to purchase set forth therein remains outstanding and other amendments that are approved by Requisite Lenders. "TERM LOANS" means, collectively, the Tranche A Term Loans and the Tranche B Term Loans. "TITLE COMPANY" means one or more title insurance companies selected by Company and reasonably satisfactory to Agents. "TOTAL UTILIZATION OF WORKING CAPITAL LOAN COMMITMENTS" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Working Capital Loans PLUS (ii) the aggregate principal amount of all outstanding Swing Line Loans PLUS (iii) the Letter of Credit Usage. "TRADE LETTERS OF CREDIT" means Letters of Credit issued for the purpose of providing the principal payment mechanism for the purchase of goods through the presentation of documents to the Issuing Lender. "TRANCHE A TERM LOAN COMMITMENT" means the commitment of a Lender to make Tranche A Term Loans to Company pursuant to subsection 2.1A(i), and "TRANCHE A TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. "TRANCHE A TERM LOAN EXPOSURE" means, with respect to any Tranche A Term Loan Lender as of any date of determination the sum, without duplication, of (i) that Lender's unused Tranche A Term Loan Commitment and (ii) the outstanding principal amount of the Tranche A Term Loans of that Lender. "TRANCHE A TERM LOAN LENDER" means any Lender who holds a Tranche A Term Loan Commitment, or who has made a Tranche A Term Loan hereunder and any assignee of such Lender pursuant to subsection 10.1B. "TRANCHE A TERM LOANS" means the Tranche A Term Loans made by Tranche A Term Loan Lenders to Company pursuant to subsection 2.1A(i). "TRANCHE A TERM NOTES" means (i) the promissory notes of Company issued pursuant to subsection 2.1D(i) on the Closing Date and (ii) any promissory notes issued by Company 30 pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Tranche A Term Loan Commitments or Tranche A Term Loans of any Tranche A Term Loan Lenders, in each case substantially in the form of EXHIBIT IV annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "TRANCHE B TERM LOAN COMMITMENT" means the commitment of a Lender to make a Tranche B Term Loan to Company pursuant to subsection 2.1A(ii), and "TRANCHE B TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. "TRANCHE B TERM LOAN EXPOSURE" means, with respect to any Tranche B Term Loan Lender as of any date of determination (i) prior to the funding of the Tranche B Term Loans, that Lender's Tranche B Term Loan Commitment and (ii) after the funding of the Tranche B Term Loans, the outstanding principal amount of the Tranche B Term Loan of that Lender. "TRANCHE B TERM LOAN LENDER" means any Lender who holds a Tranche B Term Loan Commitment or who has made a Tranche B Term Loan hereunder, and any assignee of such Lender pursuant to subsection 10.1B. "TRANCHE B TERM LOANS" means the Tranche B Term Loans made by Tranche B Term Loan Lenders to Company pursuant to subsection 2.1A(ii). "TRANCHE B TERM NOTES" means (i) the promissory notes of Company issued pursuant to subsection 2.1D(ii) on the Closing Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Tranche B Term Loan Commitments or Tranche B Term Loans of any Tranche B Term Loan Lenders, in each case substantially in the form of EXHIBIT V annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "TRANSACTION" means the Tender Offer, the Merger, the Second Merger and the financings thereof pursuant to this Agreement, the Senior Subordinated Bridge Notes, if any, the Senior Subordinated Notes, if any, and the PIK Preferred Stock. "TRANSACTION COSTS" means the fees, costs and expenses payable by any Loan Party in connection with the Tender Offer, the Mergers and the related financing and other transactions contemplated hereby. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "WHOLLY-OWNED SUBSIDIARY" means any Subsidiary of Company all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by Company and/or one or more of Company's other Wholly-Owned Subsidiaries. "WORKING CAPITAL LENDER" means a Lender having a Working Capital Loan Commitment. 31 "WORKING CAPITAL LOAN COMMITMENT" means the commitment of a Lender to make Working Capital Loans to Company pursuant to subsection 2.1A(iii), and "WORKING CAPITAL LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. "WORKING CAPITAL LOAN COMMITMENT" means the commitment of a Working Capital Lender to make Working Capital Loans to Company pursuant to subsection 2.1A(iii), and "WORKING CAPITAL LOAN COMMITMENTS" means such commitments of all Working Capital Lenders in the aggregate. "WORKING CAPITAL LOAN COMMITMENT TERMINATION DATE" means September 30, 2004. "WORKING CAPITAL LOAN EXPOSURE" means, with respect to any Working Capital Lender as of any date of determination (i) prior to the termination of the Working Capital Loan Commitments, that Working Capital Lender's Working Capital Loan Commitment and (ii) after the termination of the Working Capital Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Working Capital Loans of that Working Capital Lender PLUS (b) in the event that Working Capital Lender is an Issuing Lender, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Working Capital Lender (in each case net of any participations purchased by other Working Capital Lenders in such Letters of Credit or any unreimbursed drawings thereunder) PLUS (c) the aggregate amount of all participations purchased by that Working Capital Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit PLUS (d) in the case of Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein purchased by other Working Capital Lenders) PLUS (e) the aggregate amount of all participations purchased by that Working Capital Lender in any outstanding Swing Line Loans. "WORKING CAPITAL LOANS" means the Loans made by Working Capital Lenders to Company pursuant to subsection 2.1A(iii). "WORKING CAPITAL NOTES" means (i) the promissory notes of Company issued pursuant to subsection 2.1D(iii) on the Closing Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Working Capital Loan Commitments and Working Capital Loans of any Working Capital Lenders, in each case substantially in the form of EXHIBIT VI annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. 1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER AGREEMENT. (a) Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder shall be made, and all financial statements required to be delivered hereunder or thereunder (including under subsection 7.6) shall be prepared, in accordance with GAAP, as in effect in the United States on December 31, 1997 and, unless expressly provided herein, shall be computed or determined on a consolidated basis and without duplication. (b) For purposes of computing the Consolidated Fixed Charge Coverage Ratio, 32 Consolidated Interest Coverage Ratio and Consolidated Leverage Ratio (and any financial calculations required to be made or included within such ratios) as of the end of any Fiscal Quarter and for purposes of computing Consolidated EBITDA in connection with subsection 7.6C (but not for purposes of computing Consolidated Excess Cash Flow for any period), as at the end of any Fiscal Quarter, all components of such ratios (other than Consolidated Capital Expenditures) or Consolidated EBITDA for the period of four Fiscal Quarters ending at the end of such Fiscal Quarter shall include or exclude, as the case may be, without duplication, such components of such ratios or Consolidated EBITDA attributable to any business or assets that have been acquired or disposed of by the Company or any of its Subsidiaries (including through mergers or consolidations) after the first day of such period of four Fiscal Quarters and prior to the end of such period, as determined in good faith by the Company on a pro forma basis for such period of four Fiscal Quarters as if such acquisition or disposition had occurred on such first day of such period (including, whether or not such inclusion would be permitted under GAAP or Regulation S-X of the Securities and Exchange Commission, cost savings that would have been realized had such acquisition occurred on such day. (c) All calculations of Consolidated EBITDA, Consolidated Fixed Charge Coverage Ratio and Consolidated Interest Coverage Ratio (and related definitions) for any period ending prior to or including the Merger Date shall be made on a pro-forma basis assuming the Tender Offer and the Merger were consummated on the first day of such period and all calculations of Consolidated Interest Expense and interest expense included in the calculation of Consolidated Interest Coverage Ratio and Consolidated Fixed Charge Coverage Ratio shall be calculated on a pro forma basis as if the Merger were consummated on the Closing Date and Annualized as set forth in the definitions of Consolidated Interest Coverage Ratio and Consolidated Fixed Charge Coverage Ratio. All calculations of Consolidated Total Debt on any date prior to the Merger Date shall be made on a pro forma basis assuming the Merger was consummated on such date. 1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION. A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. B. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. C. The use in any of the Loan Documents of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. 33 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1 Commitments; Making of Loans; Notes. A. COMMITMENTS. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, each Tranche A Term Loan Lender hereby severally agrees to make the Tranche A Term Loans described in subsection 2.1A(i), each Tranche B Term Loan Lender hereby severally agrees to make the Tranche B Term Loans described in subsection 2.1A(ii), each Working Capital Lender hereby severally agrees to make the Working Capital Loans described in subsection 2.1A(iii), Swing Line Lender hereby agrees to make the Swing Line Loans described in subsection 2.1A(iv) and each Acquisition Lender hereby severally agrees to make the Acquisition Loans described in subsection 2.1A(v). (i) TRANCHE A TERM LOANS. Each Tranche A Term Loan Lender severally agrees to lend to Company on the Closing Date and on the Merger Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche A Term Loan Commitments to be used for the purposes identified in subsection 2.5A; PROVIDED that prior to, or simultaneously with the funding of the initial Tranche A Term Loans, the Tranche B Term Loans shall have been funded in full. The amount of each Tranche A Term Loan Lender's Tranche A Term Loan Commitment is set forth opposite its name on SCHEDULE 2.1 annexed hereto and the aggregate amount of the Tranche A Term Loan Commitments is $35,000,000; PROVIDED that the Tranche A Term Loan Commitments of the Tranche A Term Loan Lenders shall be adjusted to give effect to any assignments of the Tranche A Term Loan Commitments pursuant to subsection 10.1B and to any reductions thereof pursuant to Section 2.4B(ii). Each Tranche A Term Loan Lender's Term Loan Commitment (i) shall expire immediately and without further action on October 31, 1998, if the initial Tranche A Term Loans are not made on or before that date, (ii) shall be reduced by an amount equal to the principal amount of the Tranche A Term Loan, if any, made by such Tranche A Term Loan Lender on the Closing Date, immediately after giving effect thereto on the Closing Date, and (iii) to the extent unused, shall expire on the close of business on the Merger Date. Company may make a borrowing under the Tranche A Term Loan Commitments on the Closing Date and on the Merger Date. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) TRANCHE B TERM LOANS. Each Tranche B Term Loan Lender severally agrees to lend to Company on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche B Term Loan Commitments to be used for the purposes identified in subsection 2.5A. The amount of each Tranche B Term Loan Lender's Tranche B Term Loan Commitment is set forth opposite its name on SCHEDULE 2.1 annexed hereto and the aggregate amount of the Tranche B Term Loan Commitments is $45,000,000; PROVIDED that the Tranche B Term Loan Commitments of Tranche B Term Loan Lenders shall be adjusted to give effect to any assignments of the Tranche B Term Loan Commitments pursuant to subsection 10.1B. Each Tranche B Term Loan Lender's Tranche B Term Loan Commitment shall expire immediately and without further action on the earlier of (i) October 31, 1998, if the Tranche B Term Loans are not made on or before that date and (ii) at the close of business on the Closing Date. 34 Company may make only one borrowing under the Tranche B Term Loan Commitments. Amounts borrowed under this subsection 2.1A(ii) and subsequently repaid or prepaid may not be reborrowed. (iii) WORKING CAPITAL LOANS. Each Working Capital Lender severally agrees, subject to the limitations set forth below with respect to the maximum amount of Working Capital Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Closing Date to but excluding the Working Capital Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Working Capital Loan Commitments to be used for the purposes identified in subsection 2.5B. The original amount of each Working Capital Lender's Working Capital Loan Commitment is set forth opposite its name on SCHEDULE 2.1 annexed hereto and the aggregate original amount of the Working Capital Loan Commitments is $25,000,000; PROVIDED that the Working Capital Loan Commitments of the Working Capital Lenders shall be adjusted to give effect to any assignments of the Working Capital Loan Commitments pursuant to subsection 10.1B; PROVIDED FURTHER the Working Capital Loan Commitments may be increased pursuant to the immediately succeeding paragraph of this subsection 2.1A(iii); and PROVIDED STILL FURTHER that the amount of the Working Capital Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4B(ii). Each Working Capital Lender's Working Capital Loan Commitment shall expire on the Working Capital Loan Commitment Termination Date and all Working Capital Loans and all other amounts owed hereunder with respect to the Working Capital Loans and the Working Capital Loan Commitments shall be paid in full no later than that date; PROVIDED that each Working Capital Lender's Working Capital Loan Commitment shall expire immediately and without further action on October 31, 1998, if the Tranche B Term Loans are not made on or before that date. Amounts borrowed under this subsection 2.1A(iii) may be repaid and, at any time to but excluding the Working Capital Loan Commitment Termination Date, reborrowed. At any time that no Potential Event of Default or Event of Default has occurred and is continuing, the Company may, by notice to the Agents, request that, on the terms and subject to the conditions contained in this Agreement, the Lenders and/or other financial institutions not then a party to this Agreement that are satisfactory to the Agents provide up to an aggregate amount of $20,000,000 in additional Working Capital Loan Commitments. Upon receipt of such notice, the Syndication Agent shall use all commercially reasonable efforts to arrange for the Lenders or other financial institutions to provide such additional Working Capital Loan Commitments; PROVIDED that the Syndication Agent will first offer each of the Lenders that then has a Pro Rata Share of any Working Capital Loan Commitments a pro rata portion (based upon the aggregate amount of the Working Capital Loan Commitments at such time) of any such additional Working Capital Loan Commitment. Alternatively, any Lender may commit to provide the full amount of the requested additional Working Capital Loan Commitments and then offer portions of such additional Working Capital Loan Commitments to the other Lenders or other financial institutions, subject to the proviso in the immediately preceding sentence. Nothing contained in this paragraph or otherwise in this Agreement 35 is intended to commit any Lender or any Agent to provide any portion of any such additional Working Capital Loan Commitments. If and to the extent that any Lenders and/or other financial institutions agree, in their sole discretion, to provide any such additional Working Capital Loan Commitments, (i) the aggregate amount of the Working Capital Loan Commitments shall be increased by the amount of the additional Working Capital Loan Commitments agreed to be so provided, (ii) the Pro Rata Shares of the respective Lenders in respect of the Working Capital Loan Commitments shall be proportionally adjusted, (iii) at such time and in such manner as Company and the Syndication Agent shall agree (it being understood that Company and the Agents will use all commercially reasonable efforts to avoid the prepayment or assignment of any Eurodollar Rate Loan on a day other than the last day of the Interest Period applicable thereto), the Lenders shall assign and assume outstanding Working Capital Loans and participations in outstanding Letters of Credit so as to cause the amount of such Working Capital Loans and participations in Letters of Credit held by each Lender to conform to the respective percentages of the applicable Working Capital Loan Commitments of the Lenders and (iv) Company shall execute and deliver any additional Notes or other amendments or modifications to this Agreement or any other Loan Document as the Agents may reasonably request. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Total Utilization of Working Capital Loan Commitments at any time exceed the Working Capital Loan Commitments then in effect. (iv) SWING LINE LOANS. Swing Line Lender hereby agrees, subject to the limitations set forth below with respect to the maximum amount of Swing Line Loans permitted to be outstanding from time to time, to make a portion of the Working Capital Loan Commitments available to Company from time to time during the period from the Closing Date to but excluding the Working Capital Loan Commitment Termination Date by making Swing Line Loans to Company in an aggregate amount not exceeding the amount of the Swing Line Loan Commitment to be used for the purposes identified in subsection 2.5B, notwithstanding the fact that such Swing Line Loans, when aggregated with Swing Line Lender's outstanding Working Capital Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed Swing Line Lender's Working Capital Loan Commitment. The original amount of the Swing Line Loan Commitment is $5,000,000; PROVIDED that any reduction of the Working Capital Loan Commitments made pursuant to subsection 2.4B(ii) which reduces the aggregate Working Capital Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment to the amount of the Working Capital Loan Commitments, as so reduced, without any further action on the part of Company, Administrative Agent or Swing Line Lender. The Swing Line Loan Commitment shall expire on the Working Capital Loan Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than that date; PROVIDED that the Swing Line Loan Commitment shall expire immediately and without further action on October 31, 1998, if the Tranche B Term Loans are not made on or before that date. Amounts borrowed under this 36 subsection 2.1A(iv) may be repaid and, at any time to but excluding the Working Capital Loan Commitment Termination Date, reborrowed. Anything contained in this Agreement to the contrary notwithstanding, the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the limitation that in no event shall the Total Utilization of Working Capital Loan Commitments at any time exceed the Working Capital Loan Commitments then in effect. With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender may, at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 9:00 A.M. (Chicago time) on the first Business Day in advance of the proposed Funding Date, a notice (which shall be deemed to be a Notice of Borrowing given by Company) requesting Working Capital Lenders to make Working Capital Loans that are Base Rate Loans on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given which Swing Line Lender requests Working Capital Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Working Capital Loans made by Working Capital Lenders other than Swing Line Lender shall be immediately delivered by Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Working Capital Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Working Capital Loan made by Swing Line Lender, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Working Capital Loans and shall be due under the Working Capital Note of Swing Line Lender and the participations of each Working Capital Lender in such Refunded Swing Line Loan shall be extinguished without further action. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Working Capital Loans made by Working Capital Lenders, including the Working Capital Loan deemed to be made by Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Working Capital Lenders in the manner contemplated by subsection 10.5. Immediately upon funding of any Swing Line Loan, each Working Capital Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans in an amount equal to its Pro Rata Share of the principal amount of such Swing Line Loans. Upon one Business Day's notice from Swing Line Lender, each Working Capital Lender shall deliver to Swing Line Lender an amount 37 equal to its respective participation in any outstanding Swing Line Loans in same day funds at the Funding and Payment Office. Each such amount so delivered by any Working Capital Lender shall be deemed to be a Base Rate Working Capital Loan of such Working Capital Lender, and the Swing Line Lender's participation, in its capacity as a Working Capital Lender, in any outstanding Swing Line Loans shall be deemed to be converted to a Working Capital Loan of the Swing Line Lender made in its capacity as a Working Capital Lender. In the event any Working Capital Lender fails to make available to Swing Line Lender the amount of such Working Capital Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Working Capital Lender together with interest thereon at the rate customarily used by Swing Line Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. In the event Swing Line Lender receives a payment of any amount in which other Working Capital Lenders have purchased participations as provided in this paragraph, Swing Line Lender shall promptly distribute to each such other Working Capital Lender its Pro Rata Share of such payment. Anything contained herein to the contrary notwithstanding, each Working Capital Lender's obligation to make Working Capital Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Working Capital Lender's obligation to purchase a participation in Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including (a) any set-off, counterclaim, recoupment, defense or other right which such Working Capital Lender may have against Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of an Event of Default or a Potential Event of Default (subject to the proviso set forth below); (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; PROVIDED that such obligations of each Working Capital Lender are subject to satisfaction of one of the following conditions (X) Swing Line Lender believed in good faith that all conditions under Section 4 to the making of the applicable Refunded Swing Line Loans were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made or (Y) the satisfaction of any such condition not satisfied had been waived in accordance with subsection 10.6. (v) ACQUISITION LOANS. Each Acquisition Lender severally agrees, subject to the limitations set forth below with respect to the maximum amount of Acquisition Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Merger Date to but excluding the Acquisition Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Acquisition Loan Commitments to be used for the purposes identified in subsection 2.5C. The original amount of each Acquisition Lender's Acquisition Loan Commitment is set forth opposite its name on SCHEDULE 2.1 annexed hereto and the aggregate original amount of the Acquisition Loan Commitments is $25,000,000; PROVIDED that the Acquisition Loan Commitments of the Acquisition 38 Lenders shall be adjusted to give effect to any assignments of the Acquisition Loan Commitments pursuant to subsection 10.1B; PROVIDED FURTHER that the amount of the Acquisition Loan Commitments shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Acquisition Lender's Acquisition Loan Commitment shall expire on the Acquisition Loan Commitment Termination Date and all Acquisition Loans and all other amounts owed hereunder with respect to the Acquisition Loans and the Acquisition Loan Commitments shall be paid in full no later than that date; PROVIDED that each Acquisition Lender's Acquisition Loan Commitment shall expire immediately and without further action on October 31, 1998, if the Tranche B Term Loans are not made on or before that date. Amounts borrowed under this subsection 2.1A(v) may be repaid and reborrowed to but excluding the Acquisition Loan Commitment Termination Date. B. BORROWING MECHANICS. Loans made on any Funding Date (other than Working Capital Loans deemed made pursuant to a request by Swing Line Lender pursuant to subsection 2.1A(iv) for the purpose of repaying any Refunded Swing Line Loans or Working Capital Loans made pursuant to subsection 3.3B for the purpose of reimbursing any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it ("LC REFUNDING LOANS")) shall be in an aggregate minimum amount of $1,000,000 and multiples of $100,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $250,000 and multiples of $10,000 in excess of that amount. Whenever Company desires that Lenders make Loans (other than Swing Line Loans or LC Refunding Loans) it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (Chicago time) at least three Business Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan, other than Eurodollar Loans to be made on the Closing Date or the Merger Date, if the Merger Date occurs on or prior to three Business Days after the Closing Date) or 12:00 Noon (Chicago time) on the proposed Funding Date (in the case of a Base Rate Loan). Whenever Company desires that Swing Line Lender make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (Chicago time) on the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and type of Loans requested, (iii) in the case of Swing Line Loans, that such Loans shall be Base Rate Loans, (iv) in the case of any other Loans, whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Term Loans and Working Capital Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; PROVIDED that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to Administrative Agent on or before the applicable Funding Date. Any Loans made on the Closing Date and on the Merger Date (if the Merger Date occurs on or prior to three Business Days after the Closing Date) may be Eurodollar Loans regardless of whether this Agreement has been executed at least three Business Days prior to such date and so long as Company has delivered a Notice of Borrowing with respect thereto on or prior to three Business 39 Days prior to such date and has also delivered an indemnity agreement covering broken funding losses in form and substance reasonably satisfactory to Agents. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have borrowed Loans hereunder. Company shall notify Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing as being true and correct on any applicable Funding Date is not true and correct as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing as being true and correct on such Funding Date. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith or to pay the amounts payable pursuant to Section 2.6D as a result of the failure to make such borrowing. C. DISBURSEMENT OF FUNDS. All Loans (other than Swing Line Loans) under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares of the Tranche A Term Loan Commitment, the Tranche B Term Loan Commitment, the Working Capital Loan Commitment and the Acquisition Loan Commitment, as the case may be, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Administrative Agent shall notify each Lender or Swing Line Lender, as the case may be, of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent not later than 1:00 P.M. (Chicago time) on the applicable Funding Date, in each case in same day funds in Dollars, at the Funding and Payment Office. Except as provided in subsection 2.1A(iv) or subsection 3.3B with respect to Working Capital Loans used to repay Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Closing Date), 4.2 (in the case of Loans made on the Merger Date), 4.3 (in the case of Acquisition Loans) and 4.4 (in the case of all Loans (other than Tranche A Term Loans made on the Merger Date)), Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by 2:00 P.M. (Chicago time), by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative 40 Agent from Lenders or Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless Administrative Agent shall have been notified by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Funding Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Funding Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the Federal Funds Effective Rate for three Business Days and thereafter at the interest rate applicable to the relevant Loan. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Loans of the type made on the Funding Date on which, and with respect to which, Administrative Agent made available such amount. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. Unless Administrative Agent shall have been notified by Company prior to the date on which it is scheduled to make payment to Administrative Agent of a payment of principal, interest or fees to Administrative Agent for the account of Lenders that Company does not intend to make available to Administrative Agent such amount on such date, Administrative Agent may assume that Company has made such amount available to Administrative Agent on such date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Lenders a corresponding amount on such date. If such corresponding amount is not in fact made available to Administrative Agent by Company, Administrative Agent shall be entitled to recover such corresponding amount on demand from Company together with interest thereon, for each day from such scheduled payment until the date such amount is paid to Administrative Agent, at the interest rate applicable to the relevant Loan. If Company does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Lenders and Lenders shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from the scheduled payment date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Loans of the type made on such scheduled payment date on which, and with respect to which, Administrative Agent made available such amount. D. NOTES. Company shall execute and deliver on the Closing Date (i) to each Tranche A Term Loan Lender (or to Administrative Agent for that Lender) that has so requested at least one Business Day prior to the Closing Date a Tranche A Term Note substantially in the form of EXHIBIT IV annexed hereto to evidence that Lender's Tranche A Term Loan, in the principal amount of that Lender's Tranche A Term Loan Commitment and with other appropriate 41 insertions, (ii) to each Tranche B Term Loan Lender (or to Administrative Agent for that Lender) that has so requested at least one Business Day prior to the Closing Date a Tranche B Term Note substantially in the form of EXHIBIT V annexed hereto to evidence that Lender's Tranche B Term Loan, in the principal amount of that Lender's Tranche B Term Loan and with other appropriate insertions, (iii) to each Working Capital Lender (or to Administrative Agent for that Lender) that has so requested at least one Business Day prior to the Closing Date a Working Capital Note substantially in the form of EXHIBIT VI annexed hereto to evidence that Lender's Working Capital Loans, in the principal amount of that Lender's Working Capital Loan Commitment and with other appropriate insertions, (iv) to Swing Line Lender (or to Administrative Agent for Swing Line Lender) if the Swing Line Lender has so requested at least one Business Day prior to the Closing Date a Swing Line Note substantially in the form of EXHIBIT VII annexed hereto to evidence Swing Line Lender's Swing Line Loans, in the principal amount of the Swing Line Loan Commitment and with other appropriate insertions and (v) to each Acquisition Lender (or to Administrative Agent for that Lender) that has so requested at least one Business Day prior to the Closing Date an Acquisition Note substantially in the form of EXHIBIT VIII annexed hereto to evidence that Lender's Acquisition Loan, in the principal amount of that Lender's Acquisition Loan Commitment and with other appropriate insertions. E. REGISTER. (a) Each Lender may maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of Company to such Lender resulting from each Loan made by such Lender to Company, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. In the case of a Lender that does not request, pursuant to the preceding paragraph, execution and delivery of a Note or Notes evidencing the Loans made by such Lender to Company, such account or accounts shall, to the extent not inconsistent with the notations made by Administrative Agent in the Register (as defined below), be conclusive and binding on Company absent manifest error; PROVIDED, HOWEVER, that the failure of any Lender to maintain such account or accounts shall not limit or otherwise affect any Obligations of Company or any other Loan Party. (b)(i) Company hereby designates Administrative Agent to serve as its agent, solely for the purpose of this subsection (b)(i), to maintain a register (the "REGISTER") on which Administrative Agent will record each Lender's Commitments, the Loans made by each Lender to Company, the Interest Period, if any, with respect thereto and each repayment in respect of the principal amount of the Loans of each Lender to Company and annexed to which Administrative Agent shall retain a copy of each Assignment Agreement delivered to Administrative Agent pursuant to Section 10.1. Failure to make any recordation, or any error in such recordation, shall not affect Company's obligations in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and Company, Administrative Agent and the Lenders shall treat each Person in whose name a Loan (and as provided in subsection (b)(ii), the Note evidencing such Loan, if any) is registered as the owner thereof for all purposes of this Agreement notwithstanding notice or any provision herein to the contrary. Any Commitment of any Lender and the Loans made pursuant thereto may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer in the Register. Any assignment or transfer of any Commitment of any Lender or the Loans made pursuant thereto shall be registered in the Register only upon delivery to Administrative Agent of 42 an Assignment Agreement duly executed by the assignor thereof. No assignment or transfer of any Commitment of any Lender or the Loans made pursuant thereto shall be effective, unless such assignment or transfer shall have been recorded in the Register by Administrative Agent as provided in this Section. (ii) Company agrees that, upon the request by any Lender which becomes a party to this Agreement after the date hereof to Administrative Agent, Company will execute and deliver to such Lender a Note evidencing the Loans made by such Lender to Company. Company authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, INTER ALIA, the date of, the outstanding principal amount of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall, to the extent not consistent with the notations made by Administrative Agent in the Register, be conclusive and binding on Company absent manifest error; PROVIDED, HOWEVER, that the failure of any Lender to make any such notations or any error in any such notations shall not limit or otherwise affect any Obligations of Company or any other Loan Party. The Loans evidenced by any such Note and interest thereon shall at all times (including after assignment pursuant to Section 10.1) be represented by one or more Notes payable to the order of the payee named therein and its registered assigns. A Note and the obligations evidenced thereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of such Note and the obligation evidenced thereby in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of an obligation evidenced by a Note shall be registered in the Register only upon surrender for registration of assignment or transfer of the Note evidencing such obligation, accompanied by an Assignment Agreement duly executed by the assignor thereof, and thereupon, if requested by the assignee, one or more new Notes shall be issued by Company to the designated assignee marked "exchanged". No assignment of a Note and the obligation evidenced thereby shall be effective unless it shall have been recorded in the Register by Administrative Agent as provided in this Section. 2.2 INTEREST ON THE LOANS. A. RATE OF INTEREST. Subject to the provisions of subsection 2.6, each Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Adjusted Eurodollar Rate. Each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made through maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate. The applicable basis for determining the rate of interest with respect to any Loan shall be selected by Company initially at the time a Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.1B, and the basis for determining the interest rate with respect to any Loan may be changed from time to time pursuant to subsection 2.2D. 43 (i) (a) Subject to the provisions of subsection 2.2E, the Tranche A Term Loans, the Working Capital Loans and the Acquisition Loans shall bear interest through maturity as follows: (1) if a Base Rate Loan, then at the sum of the Base Rate PLUS the Base Rate Margin set forth in the table below opposite the Consolidated Leverage Ratio as set forth in the most recent Margin Determination Certificate delivered pursuant to subsection 6.1(iv); or (2) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate for the Interest Period applicable to such Loan PLUS the Eurodollar Rate Margin set forth in the table below opposite the Consolidated Leverage Ratio as set forth in the most recent Margin Determination Certificate delivered pursuant to subsection 6.1(iv):
Applicable Eurodollar Rate Applicable Base Consolidated Leverage Ratio Margin Rate Margin --------------------------- -------- ------------- Greater than or equal to 2.25% 1.00% 5.00:1.00 Greater than or equal to 2.00% 0.75% 4.00:1.00 but less than 5.00:1.00 Greater than or equal to 1.50% 0.25% 3.00:1.00 but less than 4.00:1.00 Less than 3.00:1.00 1.00% 0.00%
PROVIDED that until the delivery of the first Margin Determination Certificate pursuant to subsection 6.1(iv) after the six-month anniversary of the Closing Date, the applicable margin for Tranche A Term Loans, Working Capital Loans and Acquisition Loans that are Eurodollar Rate Loans shall be 2.25% per annum and for Tranche A Term Loans, Working Capital Loans, Swing Line Loans and Acquisition Loans that are Base Rate Loans shall be 1.00% per annum; PROVIDED FURTHER in the event that at any time during the period from the Closing Date until the consummation of the Merger, Acquisition Co. shall own less than the Minimum Shares, then for each day or part of a day that Acquisition Co. owns less than the Minimum Shares, the applicable margins shall be increased by an additional 1.00% per annum. Changes in the applicable margin for Tranche A Term Loans, Working Capital Loans and Acquisition Loans resulting from a change in the Consolidated Leverage Ratio shall become effective as provided in subsection 2.3C. 44 If at any time a Margin Determination Certificate is not delivered at the time required pursuant to subsection 6.1(iv), from the time such Margin Determination Certificate was required to be delivered until delivery of such Margin Determination Certificate, such applicable margins shall be the maximum percentage amount for the relevant Loan set forth above. (b) Subject to the provisions of subsection 2.2E, the Tranche B Term Loans shall bear interest through maturity as follows: (1) if a Base Rate Loan, then at the sum of the Base Rate PLUS 1.25% per annum; or (2) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate for the Interest Period applicable to such Loan PLUS 2.50% per annum; PROVIDED that in the event that at any time during the period from the Closing Date until the consummation of the Merger, Acquisition Co. shall own less than the Minimum Shares, then for each day or part of a day that Acquisition Co. owns less than the Minimum Shares, the applicable margins shall be increased by an additional 1.00% per annum. (ii) Subject to the provisions of subsection 2.2E, the Swing Line Loans shall bear interest through maturity at the sum of the Base Rate PLUS the Base Rate Margin for Working Capital Loans minus the commitment fee percentage then in effect for Working Capital Loans as determined pursuant to subsection 2.3A(i). B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an interest period (each an "INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall be, at Company's option, either a one, two, three, six, or, if available, nine or twelve month period; PROVIDED that: (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; PROVIDED that, if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; 45 (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the Tranche A Term Loans shall extend beyond September 30, 2004, no Interest Period with respect to any portion of the Tranche B Term Loans shall extend beyond September 30, 2005, no Interest Period with respect to any portion of the Working Capital Loans shall extend beyond the Working Capital Loan Commitment Termination Date and no Interest Period with respect to any portion of the Acquisition Loans shall extend the Acquisition Loan Commitment Termination Date; (vi) no Interest Period with respect to any portion of the Tranche A Term Loans or the Tranche B Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, unless the sum of (a) the aggregate principal amount of Tranche A Term Loans or Tranche B Term Loans, as the case may be, that are Base Rate Loans PLUS (b) the aggregate principal amount of Tranche A Term Loans or Tranche B Term Loans, as the case may be, that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Tranche A Term Loans or Tranche B Term Loans, as the case may be, on such date; (vii) there shall be outstanding at any time no more than four Interest Periods with respect to the Tranche A Term Loans, four Interest Periods with respect to the Tranche B Term Loans, six Interest Periods with respect to the Working Capital Loans and four Interest Periods with respect to the Acquisition Loans; and (viii) in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month ; PROVIDED that with respect to each Term Loan made on the Closing Date or the Merger Date, the initial Interest Period will commence on the Business Day on which such Term Loan is made (or, if such Term Loan is made as a Base Rate Loan, the initial Interest Period will commence on the date specified in the Notice of Conversion delivered with respect thereto) and shall end on the last Business Day of the month following the month in which such Term Loan is made. C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity); PROVIDED that in the event any Swing Line Loans or any Working Capital Loans or any Acquisition Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such Swing Line Loans or Working Capital Loans or 46 Acquisition Loans through the date of such prepayment shall be payable on the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity). D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Loans equal to $1,000,000 and multiples of $100,000 in excess of that amount from Loans bearing interest at the Base Rate to Loans bearing interest at the Eurodollar Rate or all or any part of its outstanding Loans equal to $1,000,000 and multiples of $100,000 in excess of that amount from Loans bearing interest at the Eurodollar Rate to Loans bearing interest at the Base Rate or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and multiples of $100,000 in excess of that amount as a Eurodollar Rate Loan. Company shall deliver a Notice of Conversion/Continuation to Administrative Agent no later than 10:00 A.M. (Chicago time) on the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Potential Event of Default or Event of Default has occurred and is continuing as of the date of the proposed conversion/continuation. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; PROVIDED that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to Administrative Agent on or before the proposed conversion/continuation date. Upon receipt of written or telephonic notice of any proposed conversion/continuation under this subsection 2.2D, Administrative Agent shall promptly transmit such notice by telefacsimile or telephone to each Lender. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith or to pay the amounts payable pursuant to Section 2.6D as a result of the failure to effect such continuation/conversion. 47 E. DEFAULT RATE. Upon the occurrence and during the continuation of any Event of Default, at the request of Administrative Agent, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans that are Working Capital Loans); PROVIDED that, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of any Agent or any Lender. F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed (i) in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan (if payment is received prior to 2:00 P.M. (Chicago time)) or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded, provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. 2.3 FEES. A. COMMITMENT FEES. (i) WORKING CAPITAL COMMITMENTS. Company agrees to pay to Administrative Agent, for distribution to each Working Capital Lender in proportion to that Lender's Pro Rata Share of the Working Capital Loan Commitments, commitment fees for each day during the period from and including the Closing Date to and excluding the Working Capital Loan Commitment Termination Date (or, if earlier, the date of termination of the Working Capital Loan Commitments in their entirety) on the excess on such day of the Working Capital Loan Commitments over the sum of (i) the aggregate principal amount of outstanding Working Capital Loans on such day plus (ii) the Letter of Credit Usage (but not including any outstanding Swing Line Loans) on such day at a rate per annum equal to the commitment fee percentage set forth below opposite the 48 Consolidated Leverage Ratio as set forth in the most recent Margin Determination Certificate delivered pursuant to subsection 6.1(iv):
Working Capital Loan Consolidated Leverage Ratio Commitment Fee Percentage --------------------------------------------------------------------- Greater than or equal to 5.00:1.00 0.500% Greater than or equal to 4.00:1.00 0.375% but less than 5.00:1.00 Greater than or equal to 3.00:1.00 0.300% but less than 4.00:1.00 Less than 3.00:1.00 0.250%
such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on each Quarterly Date of each year, commencing on the first such date to occur after the Closing Date, and on the Working Capital Loan Commitment Termination Date; PROVIDED that until the delivery of the first Margin Determination Certificate pursuant to subsection 6.1(iv) after the six-month anniversary of the Closing Date the applicable commitment fee percentage for the Working Capital Loan Commitments shall be 0.50%. Changes in the applicable commitment fee rate for Working Capital Loan Commitments resulting from a change in the Consolidated Leverage Ratio shall become effective as provided in subsection 2.3C. In the event that Company fails to deliver a Margin Determination Certificate timely in accordance with the provisions of subsection 6.1(iv), from the time such Margin Determination Certificate was required to be delivered until such date as such a Margin Determination Certificate is actually delivered, the applicable commitment fee percentage shall be the maximum percentage amount set forth above per annum. (ii) ACQUISITION LOAN COMMITMENTS. Company agrees to pay to Administrative Agent, for distribution to each Acquisition Lender in proportion to that Acquisition Lender's Pro Rata Share of the Acquisition Loan Commitments, commitment fees for each day during the period from and including the Closing Date to and excluding the Acquisition Loan Commitment Termination Date (or, if earlier, the date of termination of the Acquisition Loan Commitments in their entirety) on the excess on such day of the Acquisition Loan Commitments over the aggregate principal amount of outstanding Acquisition Loans on such date, (the "Unused Acquisition Loan Commitment Amount") at a rate per annum equal to the commitment fee percentage set out below opposite the Consolidated Leverage Ratio as set forth in the most recent Margin Determination Certificate delivered pursuant to subsection 6.1(iv), PROVIDED that on any date prior to the date of the delivery of the first Margin Determination Certificate after the six month anniversary of the Closing Date, if the Unused Acquisition Loan Commitment Amount on such date is less than 50% of the aggregate Acquisition Loan 49 Commitments, the applicable commitment fee percentage on such date shall be 0.75% per annum and if the Unused Acquisition Loan Commitment Amount on such date is equal to or greater than 50% of the aggregate Acquisition Loan Commitments, the applicable commitment fee percentage on such date shall be 0.50% per annum:
Acquisition Loan Commitment Fee Percentage ------------------------------------ Consolidated Leverage Ratio Utilization Utilization GREATER OR EQUAL LESS THAN 50% TO 50% -------------------------------------------------------------------------------- Greater than or equal to 5.00:1.00 0.750% 0.500% Greater than or equal to 4.00:1.00 0.625% 0.375% but less than 5.00:1.00 Greater than or equal to 3.00:1.00 0.550% 0.300% but less than 4.00:1.00 Less than 3.00:1.00 0.500% 0.250%
such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on each Quarterly Date of each year, commencing on the first such date to occur after the Closing Date, and on the Acquisition Loan Commitment Termination Date. Changes in the applicable commitment fee rate for Acquisition Loan Commitments resulting from a change in the Consolidated Leverage Ratio shall become effective as provided in Subsection 2.3c.. In the event that Company fails to deliver a Margin Determination Certificate timely in accordance with the provisions of subsection 6.1(iv), from the time such Margin Determination Certificate was required to be delivered until such date as such a Margin Determination Certificate is actually delivered, the applicable commitment fee percentage shall be the maximum percentage amount set forth above per annum. (iii) TRANCHE A TERM LOAN COMMITMENTS. Company agrees to pay to Administrative Agent, for distribution to each Tranche A Term Loan Lender in proportion to that Tranche A Term Loan Lender's Pro Rata Share of the Tranche A Term Loan Commitments, commitment fees for the period from and including the Closing Date to and excluding the Merger Date (or, if earlier, the date of termination of the Tranche A Term Loan Commitments in their entirety) on the daily average unused Tranche A Term Loan Commitments during such period at a rate per annum equal to 2.25%; such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly on each Quarterly Date, commencing on the first such date to occur after the Closing Date and on the Merger Date. 50 B. OTHER FEES. Company agrees to pay to Arranger and Agents such other fees in the amounts and at the times separately agreed upon between Company, Agents and Arranger. C. DETERMINATION OF APPLICABLE MARGINS. Subject to the last sentence of subsection 2.2A(i)(a), the last sentence of subsection 2.3A(i) and the last sentence of subsection 2.3A(ii), the Consolidated Leverage Ratio used to compute the applicable margin for Tranche A Term Loans, Working Capital Loans and Acquisition Loans for purposes of subsection 2.2A(i) and subsection 3.2 and the applicable commitment fee rates for the Working Capital Loan Commitments and the Acquisition Loan Commitments for purposes of subsection 2.3A (such applicable margins and commitment fee rates being referred to in this subsection 2.3C as the "APPLICABLE MARGINS") for any day shall be the Consolidated Leverage Ratio set forth in the Margin Determination Certificate most recently delivered by Company to Administrative Agent on or prior to such day pursuant to subsection 6.1(iv). Changes in the Applicable Margins resulting from a change in the Consolidated Leverage Ratio shall become effective on the first Business Day following delivery by Company to Administrative Agent of a new Margin Determination Certificate pursuant to subsection 6.1(iv). Notwithstanding the foregoing, Company may, in its sole discretion, within ten Business Days following the end of any Fiscal Quarter, deliver to Administrative Agent a written estimate (the "LEVERAGE RATIO ESTIMATE") setting forth Company's good faith estimate of the Consolidated Leverage Ratio (based on calculations contained in a Margin Determination Certificate) that will be set forth in the next Margin Determination Certificate required to be delivered by Company to Administrative Agent pursuant to subsection 6.1(iv). In the event that the Leverage Ratio Estimate indicates that there would be a change in the Applicable Margins resulting from a change in the Consolidated Leverage Ratio, such change will become effective on the first Business Day following delivery of the Leverage Ratio Estimate. In the event that, once the next Margin Determination Certificate is delivered, the Consolidated Leverage Ratio as set forth in such Margin Determination Certificate differs from that calculated in the Leverage Ratio Estimate delivered for the Fiscal Quarter with respect to which such Margin Determination Certificate has been delivered, and such difference results in Applicable Margins which are greater or lesser than the Applicable Margins theretofore in effect, then (A) such greater or lesser Applicable Margins shall be deemed to be in effect for all purposes of this Agreement from the first Business Day following the delivery of the Leverage Ratio Estimate and (B) if Company shall have theretofore made any payment of interest, commitment fees or letter of credit fees in respect of the period from the first Business Day following the delivery of the Leverage Ratio Estimate to the Business Day following actual date of delivery of the Margin Determination Certificate, then, on the next Quarterly Date, either (x) if the new Applicable Margins are greater than the Applicable Margins theretofore in effect, Company shall pay as a supplemental payment of interest, commitment fees and/or letter of credit fees, as applicable, an amount which equals the difference between the amount of interest, commitment fees and/or letter of credit fees that would otherwise have been paid based on such new Consolidated Leverage Ratio and the amount of interest, commitment ees and/or letter of credit fees, as applicable, actually so paid, or (y) if the new Applicable Margins are less than the Applicable Margins theretofore in effect, an amount shall be deducted from the interest, commitment fees and/or letter of credit fees, as applicable, then otherwise payable in an amount which equals the difference between the amount of interest, commitment fees and/or letter of credit fees, as applicable, so paid and the amount of 51 interest, commitment fees and/or letter of credit fees, as applicable, that would otherwise have been paid based on such new Consolidated Leverage Ratio (or, if no such payment is owed by Company to the applicable Lenders on such next Quarterly Date, or if such amount owed by Company is less than such difference, the applicable Lenders shall pay to Company on such next Quarterly Date the amount of such difference less the amount, if any, owed by Company to such Lenders on such Quarterly Date). 2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN LOAN COMMITMENTS; GENERAL PROVISIONS REGARDING PAYMENTS. A. SCHEDULED PAYMENTS OF TRANCHE A TERM LOANS AND TRANCHE B TERM LOANS. (i) SCHEDULED PAYMENTS OF TRANCHE A TERM LOANS. Company shall make principal payments on the Tranche A Term Loans on each of the following dates in the aggregate amount, expressed as a percentage of the Tranche A Term Loan Lenders' aggregate original Tranche A Term Loan Commitments, set forth opposite such date in the table set forth below:
--------------------------------------------------------- Scheduled Repayment Date Scheduled Repayment of Tranche A Term Loans ---------------------------------------------------------- ---------------------------------------------------------- December 31, 1999 1.25% March 31, 2000 1.25% June 30, 2000 1.25% September 30, 2000 1.25% December 31, 2000 2.50% March 31, 2001 2.50% June 30, 2001 2.50% September 30, 2001 2.50% December 31, 2001 5.00% March 31, 2002 5.00% June 30, 2002 5.00% September 30, 2002 5.00% December 31, 2002 6.25% March 31, 2003 6.25% June 30, 2003 6.25% September 30, 2003 6.25% December 31, 2003 10.00% March 31, 2004 10.00% June 30, 2004 10.00% September 30, 2004 10.00% ------------ Total 100.00% ------------
52 ; PROVIDED that the scheduled installments of principal of the Tranche A Term Loans set forth above shall be reduced by an amount equal to the aggregate principal amount of any voluntary or mandatory prepayments of the Tranche A Term Loans in accordance with subsection 2.4B(iv); and PROVIDED, FURTHER that the Tranche A Term Loans and all other amounts owed hereunder with respect to the Tranche A Term Loans shall be paid in full no later than September 30, 2004, and the final installment payable by Company in respect of the Tranche A Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche A Term Loans. (ii) SCHEDULED PAYMENTS OF TRANCHE B TERM LOANS. Company shall make principal payments on the Tranche B Term Loans in installments on each of the following dates in the aggregate amount set forth opposite such date in the table set forth below: 53
--------------------------------------------------------- Scheduled Repayment Date Scheduled Repayment of Tranche B Term Loans --------------------------------------------------------- December 31, 1998 $112,500 March 31, 1999 $112,500 June 30, 1999 $112,500 September 30, 1999 $112,500 December 31, 1999 $112,500 March 31, 2000 $112,500 June 30, 2000 $112,500 September 30, 2000 $112,500 December 31, 2000 $112,500 March 31, 2001 $112,500 June 30, 2001 $112,500 September 30, 2001 $112,500 December 31, 2001 $112,500 March 31, 2002 $112,500 June 30, 2002 $112,500 September 30, 2002 $112,500 December 31, 2002 $112,500 March 31, 2003 $112,500 June 30, 2003 $112,500 September 30, 2003 $112,500 December 31, 2003 $112,500 March 31, 2004 $112,500 June 30, 2004 $112,500 September 30, 2004 $112,500 December 31, 2004 $10,575,000 March 31, 2005 $10,575,000 June 30, 2005 $10,575,000 September 30, 2005 $10,575,000 -------------------- Total $45,000,000 --------------------
; PROVIDED that the scheduled installments of principal of the Tranche B Term Loans set forth above shall be reduced by an amount equal to the aggregate principal amount of any voluntary or mandatory prepayments of the Tranche B Term Loans in accordance with subsection 2.4B(iv); and PROVIDED, FURTHER that the Tranche B Term Loans and all other amounts owed hereunder with respect to the Tranche B Term Loans shall be paid in full no later than September 30, 2005, and the final installment payable by Company in respect of the Tranche B Term Loans on such date 54 shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Tranche B Term Loans. B. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN COMMITMENTS. (i) VOLUNTARY PREPAYMENTS. Company may, upon written or telephonic notice to Administrative Agent on or prior to 2:00 PM (Chicago time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $250,000 and multiples of $10,000 in excess of that amount. Company may, upon one Business Day's prior written or telephonic notice by 12:00 Noon (Chicago time), in the case of Base Rate Loans (other than Swing Line Loans), and three Business Days' prior written or telephonic notice, in the case of Eurodollar Rate Loans, in each case given to Administrative Agent by 11:00 A.M. (Chicago time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time prepay any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $1,000,000 and multiples of $100,000 in excess of that amount, subject in the case of prepayments of Eurodollar Loans to compliance with subsection 2.6D if such prepayment is made on a date prior to the expiration of the applicable Interest Period. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4B(iv). (ii) VOLUNTARY REDUCTIONS OF LOAN COMMITMENTS. Company may, upon not less than one Business Day's prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Working Capital Lender or Acquisition Loan Lender, as the case may be), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, (a) the Working Capital Loan Commitments in an amount up to the amount by which the Working Capital Loan Commitments exceed the Total Utilization of Working Capital Loan Commitments at the time of such proposed termination or reduction, (b) the Acquisition Loan Commitments in an amount up to the amount by which the Acquisition Loan Commitments exceed the outstanding Acquisition Loans at the time of such proposed termination or reduction; PROVIDED that any such partial reduction shall be in an aggregate minimum amount of $1,000,000 and multiples of $100,000 in excess of that amount. Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Working Capital Loan Commitments and/or the Acquisition Loan Commitments, as the case may be, shall be effective on the date specified in Company's notice and shall reduce the Working Capital Loan Commitment of each Working Capital Lender and/or the Acquisition Loan 55 Commitments, as the case may be, of each Acquisition Loan Lender proportionately to its Pro Rata Share. (iii) MANDATORY PREPAYMENTS AND MANDATORY REDUCTIONS OF LOAN COMMITMENTS. Upon and after the Merger Date, the Loans shall be prepaid and/or the Acquisition Loan Commitments shall be permanently reduced in the amounts and under the circumstances set forth below, all such prepayments and/or reductions to be applied as set forth below or as more specifically provided in subsection 2.4B(iv): (a) PREPAYMENTS AND REDUCTIONS FROM NET ASSET SALE PROCEEDS. No later than 30 calendar days following the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale consummated after the consummation of the Merger (other than any Asset Sale permitted under subsections 7.7(iv) and 7.7(x) or an Asset Sale to Company or a Subsidiary Guarantor), Company shall prepay the Loans and/or the Acquisition Loan Commitments shall be permanently reduced in an aggregate amount equal to such Net Asset Sale Proceeds; PROVIDED that if Company states in the Officers' Certificate delivered pursuant to subsection 2.4B(iii)(e) that Company or the applicable Subsidiary intends to apply, within 365 days after the receipt of such Net Asset Sale Proceeds, all or a portion (as specified in such Officers' Certificate) of such Net Asset Sale Proceeds to a Property Reinvestment Application Company shall not be required to prepay the Loans and/or the Acquisition Loan Commitments shall not be reduced by such amount to be applied to a Property Reinvestment Application; provided further that to the extent such amount of Net Asset Sale Proceeds is not applied to a Property Reinvestment Application within such 365-day period, Company shall, on the last day of such 365-day period prepay the Loans and/or the Acquisition Loan Commitments shall be permanently reduced by the aggregate amount equal to such amount of Net Asset Sale Proceeds not so applied to Property Reinvestment Application. (b) PREPAYMENTS AND REDUCTIONS FROM NET INSURANCE/CONDEMNATION PROCEEDS. No later than the first Business Day following the date of receipt by Administrative Agent or by Company or any of its Subsidiaries after the Merger Date of any Net Insurance/Condemnation Proceeds in excess of $250,000 with respect to any loss or taking or series of related losses or takings, Company shall prepay the Loans and/or the Acquisition Loan Commitments shall be permanently reduced in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds; PROVIDED, HOWEVER, that (i) no such prepayment and/or reduction shall be required to the extent under the terms of any lease or other agreement existing on the date hereof such Net Insurance/Condemnation Proceeds are required to be used to replace, rebuild or repair the asset so damaged, destroyed or taken and (ii) if Company states in the Officers' Certificate delivered pursuant to subsection 2.4B(iii)(e) that Company or the applicable Subsidiary intends to apply, within 365 days after the receipt of such Net Insurance/Condemnation Proceeds, all or a portion (as specified in such Officers' Certificate) of such Net Insurance/Condemnation Proceeds to a Property 56 Reinvestment Application, Company shall not be required to prepay Loans and/or the Acquisition Loan Commitments shall not be reduced by such amount to be applied to a Property Reinvestment Application; PROVIDED FURTHER that to the extent such amount of Net Insurance/Condemnation Proceeds is not applied to a Property Reinvestment Application within such 365-day period, Company shall, on the last day of such 365-day period prepay the Loans and/or the Acquisition Loan Commitments shall be permanently reduced by the aggregate amount equal to such amount of such Net Insurance/Condemnation Proceeds not so applied to a Property Reinvestment Application. (c) PREPAYMENTS AND REDUCTIONS DUE TO ISSUANCE OF DEBT OR EQUITY SECURITIES. On the date of receipt by Parent, Company or any of its Subsidiaries of the cash proceeds (any such cash proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including investment banking, legal, brokerage, accounting fees and expenses, being "Net Securities Proceeds"), from the issuance of equity Securities of Parent, Company or any of its Subsidiaries after the Merger Date (other than Excluded Equity Proceeds) or of debt Securities of Company or any of its Subsidiaries after the Merger Date (other than the proceeds of the issuance of Indebtedness permitted by subsection 7.1 (including without limitation the proceeds from the sale of the Senior Subordinated Notes)), Company shall prepay the Loans and/or the Acquisition Loan Commitments shall be permanently reduced in an aggregate amount equal to such Net Securities Proceeds in the case of the proceeds of debt Securities and in an aggregate amount equal to 50% of such Net Securities Proceeds in the case of the proceeds of equity Securities; PROVIDED the amount of such prepayment hereunder in respect of Net Securities Proceeds constituting the proceeds of the issuance and sale of equity Securities shall be limited to the amount necessary to reduce the amount of Indebtedness included in the calculation of the Consolidated Leverage Ratio to the amount that would result, on a pro forma basis after giving effect to such prepayment, in a Consolidated Leverage Ratio of 3.50:1.00 or less at the end of the Fiscal Quarter then most recently ended and (ii) no such prepayment in respect of Net Securities Proceeds constituting the proceeds of the issuance and sale of Equity Securities shall be required to be made at such times as the Consolidated Leverage Ratio at the end of the most recent Fiscal Quarter (as evidenced by a Margin Determination Certificate delivered to Administrative Agent pursuant to subsection 6.1(iv)) is equal to or less than 3.50:1.00. (d) PREPAYMENTS AND REDUCTIONS FROM CONSOLIDATED EXCESS CASH FLOW. In the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with the Fiscal Year ending December 31,1999), Company shall, no later than the fifth Business Day after the delivery of financial statements for such Fiscal Year, prepay the Loans and/or the Acquisition Loan Commitments shall be permanently reduced in an aggregate amount equal to 50% of such Consolidated Excess Cash Flow less the aggregate amount of all voluntary prepayments of Term Loans actually made in such Fiscal Year pursuant to subsection 2.4B(i); 57 PROVIDED that (i) the amount of such prepayment hereunder in respect of Excess Cash Flow shall be limited to the amount necessary to reduce the amount of Indebtedness included in the calculation of the Consolidated Leverage Ratio to the amount that would result, on a pro forma basis after giving effect to such prepayment, in a Consolidated Leverage Ratio of 3.50:1 or less at the end of the Fiscal Quarter then most recently ended and (ii) if as of the last day of such Fiscal Year, the Consolidated Leverage Ratio (as evidenced by a Margin Determination Certificate delivered to Administrative Agent pursuant to subsection 6.1(iv)) is equal to or less than 3.50:1.00, no prepayments of any Loans and no reduction of the Acquisition Loan Commitments or amount of Consolidated Excess Cash Flow need be made. (e) CALCULATIONS OF NET PROCEEDS AMOUNTS; ADDITIONAL PREPAYMENTS AND REDUCTIONS BASED ON SUBSEQUENT CALCULATIONS. Concurrently with any prepayment of the Loans and/or reduction of the Acquisition Loan Commitments pursuant to subsections 2.4B(iii)(a)-(d) and on the date any such prepayment and/or reduction would have been required to be made pursuant to subsections 2.4B(iii)(a) or 2.4B(iii)(b) but for the application of the provisos to such subsections, Company shall deliver to Administrative Agent an Officer's Certificate demonstrating the calculation of the amount (the "NET PROCEEDS AMOUNT") of the applicable Net Asset Sale Proceeds or Net Insurance/Condemnation Proceeds, or Net Securities Proceeds (as such term is defined in subsection 2.4B(iii)(c)), or the applicable Consolidated Excess Cash Flow, as the case may be (and which, in the case of Consolidated Excess Cash Flow, may be the Officer's Certificate delivered pursuant to subsection 6.1(iii) with respect to the financial statements for the Fiscal Year to which such excess cash flow relates if such Officer's Certificate contains the required information). In the event that Company shall subsequently determine that the actual Net Proceeds Amount was greater than the amount set forth in such Officer's Certificate, Company shall promptly make an additional prepayment of the Loans (and/or, if applicable, the Acquisition Loan Commitments shall be permanently reduced) in an amount equal to the amount of such excess, and Company shall concurrently therewith deliver to Administrative Agent an Officer's Certificate demonstrating the derivation of the additional Net Proceeds Amount resulting in such excess. (f) Company shall not be required to make any prepayment of Loans otherwise required by subsections 2.4B(iii)(a), (b), (c) or (d) (and no reduction of the Acquisition Loan Commitments shall take effect) unless and until the aggregate principal amount of the Loans to be prepaid and/or Acquisition Loan Commitments to be reduced is at least equal to $250,000. (iv) APPLICATION OF PREPAYMENTS. (a) APPLICATION OF VOLUNTARY PREPAYMENTS BY TYPE OF LOANS AND ORDER OF MATURITY. Any voluntary prepayments pursuant to subsection 2.4B(i) shall be applied to the Loans as specified by Company in the applicable notice of 58 prepayment; PROVIDED that in the event Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied FIRST to repay outstanding Swing Line Loans to the full extent thereof, SECOND to repay outstanding Term Loans to the full extent thereof and THIRD to repay outstanding Acquisition Loans to the full extent thereof and FOURTH to repay outstanding Working Capital Loans to the full extent thereof. Any voluntary prepayments of the Term Loans pursuant to subsection 2.4B(i) (whether the application thereof is specified by Company or not) shall be applied to prepay the Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and to reduce the scheduled installments of principal of the Tranche A Term Loans and Tranche B Term Loans set forth in subsection 2.4A(i) and 2.4A(ii) in forward order of maturity. (b) APPLICATION OF MANDATORY PREPAYMENTS BY TYPE OF LOANS. Any amount (the "Applied Amount") required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Acquisition Loan Commitments pursuant to subsections 2.4B(iii)(a)-(d) shall be applied FIRST to prepay the Term Loans to the full extent thereof, SECOND, to the extent of any remaining portion of the Applied Amount, to prepay the Acquisition Loans to the full extent thereof and to permanently reduce the Acquisition Loan Commitments by the amount of such prepayment, and THIRD, to the extent of any remaining portion of the Applied Amount, to prepay the Swing Line Loans and thereafter to prepay Working Capital Loans to the full extent thereof but in either case without permanently reducing the Working Capital Loan Commitments by the amount of such prepayments. (c) APPLICATION OF MANDATORY PREPAYMENTS OF TERM LOANS TO TRANCHE A TERM LOANS AND TRANCHE B TERM LOANS AND THE SCHEDULED INSTALLMENTS OF PRINCIPAL THEREOF. Any mandatory prepayments of the Term Loans pursuant to subsection 2.4B(iii) shall be applied to prepay the Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis (in accordance with the respective outstanding principal amounts thereof) and to reduce the scheduled installments of principal of the Tranche A Term Loans and Tranche B Term Loans set forth in subsection 2.4A(i) and 2.4A(ii) in forward order of maturity. Notwithstanding the foregoing, in the case of any mandatory prepayment of the Tranche B Term Loans, Company may elect to offer the Tranche B Term Loan Lenders the option to waive the right to receive the amount of such mandatory prepayment of the Tranche B Term Loans. If any Term B Lender or Lenders elect to waive the right to receive the amount of such mandatory prepayment, 50% of the amount that otherwise would have been applied to mandatorily prepay the Tranche B Term Loans of such Lender or Lenders shall be applied instead to the further prepayment of the Tranche A Term Loans (and any such prepayment shall reduce scheduled installments of principal of the Tranche A Term Loans set forth in subsection 2.4A(i) in forward order of maturity) to the extent any are then outstanding and the remaining amount shall be retained by Company. 59 (d) APPLICATION OF PREPAYMENTS TO BASE RATE LOANS AND EURODOLLAR RATE LOANS. Considering Tranche A Term Loans, Tranche B Term Loans, Working Capital Loans and Acquisition Loans being prepaid separately, any prepayment thereof shall be applied as specified by Company to Administrative Agent on or prior to the date of the relevant prepayment or, absent such specification, first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. C. GENERAL PROVISIONS REGARDING PAYMENTS. (i) MANNER AND TIME OF PAYMENT. All payments by Company of principal, interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 2:00 P.M. (Chicago time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. (ii) APPLICATION OF PAYMENTS TO PRINCIPAL AND INTEREST. Except as provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) APPORTIONMENT OF PAYMENTS. Aggregate principal and interest payments in respect of Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by Administrative Agent and the commitment fees of such Lender when received by Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. 60 D. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER GUARANTIES (i) APPLICATION OF PROCEEDS OF COLLATERAL. Except as provided in subsection 2.4B(iii)(a) with respect to prepayments from Net Asset Sale Proceeds or utilization thereof by Company, or subsection 2.4B(iii)(b) with respect to prepayments from Net Insurance/Condemnation Proceeds or utilization thereof by Company, all proceeds received by Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Collateral Document shall be applied, upon the occurrence and during the continuance of an Event of Default, against, the applicable Secured Obligations (as defined in such Collateral Document) in the following order of priority: (a) To the payment of all costs and expenses of such sale, collection or other realization, including reasonable fees and expenses of Administrative Agent and its agents and counsel, and all other expenses and liabilities made or incurred by Administrative Agent in connection therewith, and all amounts for which Administrative Agent is entitled to indemnification under such Collateral Document and all advances made by Administrative Agent thereunder for the account of the applicable Loan Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the exercise of any right or remedy under such Collateral Document, all in accordance with the terms of this Agreement and such Collateral Document; (b) thereafter, to the extent of any excess such proceeds, to the payment of all other such Secured Obligations then due and payable for the ratable benefit of the holders thereof; (c) thereafter, to the extent of any excess such proceeds, to the payment of cash collateral for Letters of Credit for the ratable benefit of the Issuing Lenders thereof and holders of participations therein; and (d) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) APPLICATION OF PAYMENTS UNDER GUARANTIES. All payments received by Administrative Agent under any of the Guaranties at any time at which an Event of Default has occurred and is continuing, shall be applied promptly from time to time by Administrative Agent in the following order of priority: (a) to the payment of the costs and expenses of any collection or other realization under the Guaranties, including reasonable fees and expenses of Administrative Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by Administrative Agent in connection therewith, all in accordance with the terms of this Agreement and such Guaranty; 61 (b) thereafter, to the extent of any excess such payments, to the payment of all other Guarantied Obligations (as defined in such Guaranty) then due and payable for the ratable benefit of the holders thereof; (c) thereafter, to the extent of any excess such payments, to the payment of cash collateral for Letters of Credit for the ratable benefit of the Issuing Lenders thereof and holders of participations therein; and (d) thereafter, to the extent of any excess such payments, to the payment to Parent or to the applicable Subsidiary Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 2.5 USE OF PROCEEDS. A. TERM LOANS. The proceeds of the Term Loans, together with other funds available to Company, shall be applied by Company to pay the Acquisition Financing Requirements. To the extent Company advances to DAH proceeds of the Term Loans on the Closing Date to repay the Existing DAH Debt, such advances shall be evidenced by the Intercompany Note Relating to Tranche A Term Loans and Working Capital Loans and /or the Intercompany Note Relating to Tranche B Term Loans, as the case may be, which notes shall be pledged by Company to Administrative Agent pursuant to the Finance Co. Pledge Agreement. To the extent the proceeds of the Tranche B Term Loans are not utilized on the Closing Date, the excess proceeds shall be deposited by Company into the Investment Accounts for the benefit of the Lenders and invested in Cash Equivalents specified in the Investment Account Agreement, as directed by Company, until the Merger Date. B. WORKING CAPITAL LOANS; SWING LINE LOANS. The proceeds of the Working Capital Loans and any Swing Line Loans may be applied by Company for working capital and general and other corporate purposes, including the making of advances to DAH as described below. Up to $10,600,000 of Working Capital Loans made on the Closing Date and/or the Merger Date may be used to pay the Acquisition Financing Requirements. The Working Capital Loans may be advanced by Company to DAH during the period from and including the Closing Date to and including the Merger Date for working capital and general and other corporate purposes. To the extent Company advances to DAH proceeds of the Working Capital Loans during such period, such advances shall be evidenced by the Intercompany Note Relating to Tranche A Term Loans and Working Capital Loans which note shall be pledged by Company to Administrative Agent pursuant to the Finance Co. Pledge Agreement. C. ACQUISITION LOANS. The proceeds of the Acquisition Loans shall be applied by Company to finance directly or indirectly the costs of Permitted Acquisitions. D. MARGIN REGULATIONS. No borrowing and no portion of the proceeds of any borrowing under this Agreement shall be used by Company or any of its Subsidiaries in any manner that is in violation of Regulation U or Regulation X of the Board of Governors of the Federal Reserve System in effect on the date or dates of such borrowing and such use of proceeds. 62 2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable after 11:00 A.M. (London time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that deposits in U.S. Dollars for the relevant Interest Period are not available to Administrative Agent in the London interbank market or by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company or, at the sole option of Company, the proposed Loans requested to be made in such Notice of Borrowing or Notice of Conversion, Continuation, as the case may be, shall instead be made as, or converted to or continued as, Base Rate Loans. C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans has become unlawful as a result of the introduction of, or any change in or in the interpretation of, any law, treaty, governmental rule, regulation, guideline or order (whether or not having the force of law even though the failure to comply therewith would not be unlawful), in each case after the date hereof, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender (which such Affected Lender shall do promptly upon obtaining actual knowledge that the circumstance giving rise to such suspension no longer exist), (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert 63 such Loan to, as the case may be) a Base Rate Loan (with interest thereon being payable on the same date or dates on which interest is payable in respect of the corresponding Loans of Lenders that are not Affected Lenders), (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination (with interest thereon being payable on the same date or dates on which interest is payable in respect of the corresponding Loans of Lenders that are not Affected Lenders). Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS. Company shall compensate each Lender, upon written request by that Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by that Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds but excluding any loss of margin for any period after any failure to borrow, continue or convert any Eurodollar Loans, or any prepayment of Eurodollar Loans described below) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i)) or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, or (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company. E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender; provided that Company shall not be liable for any additional amounts pursuant to subsection 2.7 as a result thereof nor shall any such action, by itself, cause such Lender to become an Affected Lender. F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the 64 purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; PROVIDED, HOWEVER, that each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. G. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and during the continuation of a Potential Event of Default or an Event of Default, Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan. 2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY. A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation of order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof (in the case of each Lender listed on the signature pages hereof and in the case of any other Lender if such change shall have affected a class of Lenders generally) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of any other Lender if such change shall not have affected a class of Lenders generally), or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (ii) imposes any other condition (other than with respect to a tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Eurodollar Rate Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall pay to such Lender, within 15 days after receipt of the statement 65 referred to in the next sentence, such additional amount or amounts as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall promptly deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. WITHHOLDING OF TAXES. (i) PAYMENTS TO BE FREE AND CLEAR. All sums payable by Company under this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction on account of, any Tax . (ii) GROSSING-UP OF PAYMENTS. If Company is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company to Administrative Agent or any Lender under any of the Loan Documents: (a) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made for its own account; (b) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (c) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, or within 30 days after the due date of payment of any Tax which it is required by clause (a) above to pay (whichever is later), Company shall deliver to Administrative Agent evidence available to the Company reasonably satisfactory to Administrative Agent of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; PROVIDED that no such additional amount shall be required to be paid to any Lender or Agent under clause (b) above except to the extent that any change after the date hereof (in the case of each Lender and Agent listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender or Agent. (iii) If any Taxes are directly asserted against either of the Agents or any Lender with respect to any payment received by such Agents or such Lender under the 66 Agreement, such Agents or such Lender may pay such Taxes and the Company will promptly pay to such Person such additional amount (including any penalties, interest or expenses) as is necessary in order that the net amount received by such Person shall equal the amount of such Taxes paid by such Person; PROVIDED, HOWEVER, that the Company shall not be obligated to make payment to the Lenders or the Agents (as the case may be) pursuant to this sentence in respect of penalties or interest attributable to any Taxes, if written demand therefor has not been made by such Lenders or the Agents within 60 days from the date on which such Lenders or the Agents knew of the imposition of Taxes by the relevant taxing authority or for any additional imposition which may arise from the failure of the Lenders or Agents to apply payments in accordance with the applicable tax law after the Company has made the payments required hereunder; PROVIDED, FURTHER, HOWEVER, that the Company shall not be required to pay any such additional amounts except to the extent that any change after the date hereof (in the case of each Lender and Agent listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for the deduction, withholding or payment of Taxes shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender or Agent. After a Lender or an Agent (as the case may be) learns of the imposition of Taxes, such Lender or Agent will act in good faith to notify the Company of their obligations hereunder as soon as reasonably possible. (iv) EVIDENCE OF EXEMPTION FROM U.S. WITHHOLDING TAX. (a) Each Lender and Agent that is not (i) a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States, or any state or other political subdivision thereof, (iii) an estate that is subject to U.S. federal income taxation regardless of the source of its income or (iv) a trust, if any only if (A) a court within the United States is able to exercise primary supervision over the administration of the trust and (B) one or more U.S. persons has the authority to control all substantial decisions of the trust (for purposes of this subsection 2.7B(iv), any such Person referred to in clauses (i) through (iv) being a "NON-US LENDER OR AGENT") shall deliver to Administrative Agent (which shall promptly deliver an original copy to Company) on or prior to the Closing Date (in the case of each Lender and Agent listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (1) two or more (as Company or Administrative Agent reasonably request) original copies of Internal Revenue Service Form 1001 or 4224 (or any successor forms), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other 67 amounts payable under any of the Loan Documents or (2) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (1) above, a Certificate re Non-Bank Status together with two or more (as Company or Administrative Agent reasonably request) original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. (b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to subsection 2.7B(iv)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall on or before the date that any such form, certification or other evidence becomes obsolete or inaccurate (1) deliver to Administrative Agent (which shall promptly deliver an original copy to Company) two or more (as Company or Administrative Agent may reasonably request) new original copies of Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two or more (as Company or Administrative Agent may reasonably request) new original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. Each Lender and each Agent agrees, to the extent reasonable and without material cost to it, to provide to Company and Administrative Agent such other applicable forms or certificates that would reduce or eliminate any Tax. (c) Company shall not be required to pay any additional amount to any Non-US Lender or Agent under subsection 2.7B(ii) or 2.7B(iii)if such Lender or Agent shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.7B(iv); PROVIDED that if such Lender shall have satisfied the requirements of subsection 2.7B(iv)(a) on the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it became a Lender (in the case of each other Lender), nothing in this subsection 2.7B(iv)(c) shall relieve Company of its obligation to pay any additional amounts pursuant to subsection 2.7B(ii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or 68 application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iv)(a). (v) If Company determines in good faith that a reasonable basis exists for contesting the imposition of a Tax with respect to a Lender or either of the Agents, if requested by Company, the relevant Lender or Agent, as the case may be, shall reasonably cooperate with Company in challenging such Tax at Company's expense; PROVIDED, HOWEVER, that nothing in this subsection 2.7B(v) shall require any Lender to submit to Company or any other Person any tax returns or any part thereof, or to prepare or file any tax returns other than as such Lender in its sole discretion shall determine. (vi) If a Lender or an Agent shall receive a refund (including any offset or credits) from a taxing authority (as a result of any error in the imposition of Taxes by such taxing authority) of any Taxes paid by Company pursuant to subsection 2.7B(ii) and 2.7B(iii) above, such Lender or the Agent (as the case may be) shall promptly pay Company the amount so received, with interest, if any, from the taxing authority with respect to such refund, net of any tax liability incurred by such Lender or Agent that is attributable to the receipt of such refund and such interest; PROVIDED that such Lender or Agent, as the case may be, shall be entitled to use reasonable methods to calculate the allocation of any such refund payable to Company so long as such method does not result in a materially reduced amount being paid to Company as compared to similarly situated borrowers. (vii) Each Lender and each Agent agrees, to the extent reasonable and without material cost to it, to cooperate with the Company to minimize any amounts payable by the Company under this Section 2.7B; PROVIDED, HOWEVER, that nothing in this Section 2.7B shall require any Lender to take any action which, in the sole discretion of such Lender, is inconsistent with its internal policy and legal and regulatory restrictions. C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof (in the case of each Lender listed on the signature pages hereof and in the case of any other Lender if such change shall have affected a class of Lenders generally) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of any other Lender if such change shall not have affected a class of Lenders generally) of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change after such date therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency issued after such date, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance 69 (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within 15 days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error; provided that such Lender may not impose materially greater costs on Company than on similarly situated borrowers by the virtue of the methodology applied to calculate such additional amounts. D. PERIOD OF RECOVERY. Company shall not be obligated to compensate any Lender for any costs or additional amounts with respect to which such Lender may request compensation pursuant to this subsection 2.7 or subsection 3.6 to the extent such costs have accrued, or have been incurred, prior to 180 days prior to the date on which such Lender demands compensation therefor hereunder. 2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE; REPLACEMENT OF LENDER. A. MITIGATION. Each Lender and Issuing Lender agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender or Issuing Lender to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or Issuing Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or Issuing Lender through another lending or letter of credit office of such Lender or Issuing Lender, or (ii) take such other measures as such Lender or Issuing Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be reduced and if, as determined by such Lender or Issuing Lender in its sole discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or Issuing Lender; PROVIDED that such Lender or Issuing Lender will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender or Issuing Lender as a result of utilizing such other lending or letter of credit office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or Issuing Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error. 70 B. REPLACEMENT OF LENDER. If Company receives a notice of amounts due pursuant to subsection 2.7A, subsection 2.7B or subsection 2.7C or subsection 3.6 from a Lender or a Lender becomes an Affected Lender, a Non-Funding Lender or a Non-Consenting Lender (any such Lender, a "Subject Lender"), so long as (i) Company has obtained a commitment from another Lender or an Eligible Assignee to purchase at par the Subject Lender's Loans and assume the Subject Lender's Commitments and all other obligations of the Subject Lender hereunder, and (ii) such Lender is not an Issuing Lender with respect to any Letters of Credit outstanding (unless all such Letters of Credit are terminated or arrangements acceptable to such Issuing Lender (such as a "back-to-back" letter of credit) are made, it being understood that a Standby Letter of Credit issued hereunder shall constitute such an arrangement acceptable to such Issuing Lender) upon written notice to the Subject Lender and Administrative Agent, Company may require the Subject Lender to assign all of its Loans and Commitments to such other Lender or Eligible Assignee pursuant to the provisions of subsection 10.1B; PROVIDED that, prior to or concurrently with such replacement (i) Company has paid to the Lender giving such notice all amounts under subsections 2.6D, 2.7 (if applicable) and 3.6 (if applicable) through such date of replacement, (ii) Company or the applicable assignee has paid to Administrative Agent the processing fee required to be paid by subsection 10.1B(i) and (iii) all of the requirements for such assignment contained in subsection 10.1B, including, without limitation, the consent of Agents (if required) and the receipt by Administrative Agent of an executed Assignment Agreement and other supporting documents, have been fulfilled. SECTION 3. LETTERS OF CREDIT 3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS THEREIN. A. LETTERS OF CREDIT. In addition to Company requesting that Working Capital Lenders make Working Capital Loans pursuant to subsection 2.1A(iii) and that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iv), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the Working Capital Loan Commitment Termination Date, that Issuing Lender issue Letters of Credit for the account of Company or any of its Subsidiaries (provided that Company shall be deemed to be the account party hereunder and shall be fully liable under this Section 3 with respect to all Letters of Credit issued for the account of its Subsidiaries) for the purposes specified in the definitions of Standby Letters of Credit and Trade Letters of Credit. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, Issuing Lender shall, subject to subsection 3.1B(ii), issue such Letters of Credit in accordance with the provisions of this subsection 3.1; PROVIDED that Company shall not request that Issuing Lender issue (and Issuing Lender shall not issue): (i) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Working Capital Loan Commitments would exceed the Working Capital Loan Commitments then in effect; (ii) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $5,000,000; 71 (iii) any Standby Letter of Credit having an expiration date later than the earlier of (a) the Working Capital Loan Commitment Termination Date and (b) the date that is one year from the date of issuance of such Standby Letter of Credit; PROVIDED that the immediately preceding clause (b) shall not prevent Company from requesting and any Issuing Lender from agreeing that a Standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each unless such Issuing Lender elects not to extend for any such additional period (such Issuing Lender hereby agreeing that it shall only elect not to extend such Standby Letter of Credit if, but only if, it has knowledge that an Event of Default has occurred and is continuing); or (iv) any Letter of Credit denominated in a currency other than Dollars. B. MECHANICS OF ISSUANCE. (i) NOTICE OF ISSUANCE. Whenever Company desires the issuance of a Letter of Credit, it shall deliver to Administrative Agent a Notice of Issuance of Letter of Credit substantially in the form of EXHIBIT III annexed hereto no later than 11:00 A.M. (Chicago time) at least three Business Days, or such shorter period as may be agreed to by the Issuing Lender in any particular instance, in advance of the proposed date of issuance. The Notice of Issuance of Letter of Credit shall specify (a) the proposed date of issuance (which shall be a Business Day), (b) the face amount of the Letter of Credit, (c) the expiration date of the Letter of Credit, (d) the name and address of the beneficiary, and (e) either the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit; PROVIDED that the Issuing Lender, in its reasonable discretion, may require changes in the text of the proposed Letter of Credit or any such documents; and PROVIDED, FURTHER that no Letter of Credit shall require payment against a conforming draft to be made thereunder on the same business day (under the laws of the jurisdiction in which the office of the Issuing Lender to which such draft is required to be presented is located) that such draft is presented if such presentation is made after 10:00 A.M. in the time zone of such office of the Issuing Lender) on such business day. Company shall notify the applicable Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit as being true and correct on the proposed date of issuance is not true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit as being true and correct on the proposed date of issuance. (ii) If Administrative Agent in its capacity as Issuing Lender determines that the issuance of such Letter of Credit would violate applicable law or Administrative Agent's internal policies relating to Letters of Credit, Administrative Agent shall not be obligated to issue such Letter of Credit, and Company may request any other Working 72 Capital Lender to issue the Letter of Credit. If such Working Capital Lender agrees to issue such Letter of Credit, such Working Capital Lender shall be the Issuing Lender of such Letter of Credit. (iii) ISSUANCE OF LETTER OF CREDIT. Upon satisfaction or waiver (in accordance with subsection 10.6) of the conditions set forth in subsection 4.5, the applicable Issuing Lender shall issue the requested Letter of Credit in accordance with the such Issuing Lender's standard operating procedures. (iv) NOTIFICATION TO WORKING CAPITAL LENDERS. Upon the issuance of any Letter of Credit the applicable Issuing Lender shall promptly notify Administrative Agent of such issuance, which notice shall be accompanied by a copy of such Letter of Credit. Promptly after receipt of such notice (or, if Administrative Agent is the Issuing Lender, upon issuance of such Letter of Credit), Administrative Agent shall notify each Working Capital Lender of the amount of such Lender's respective participation in such Letter of Credit, determined in accordance with subsection 3.1B(vi). (v) REPORTS TO WORKING CAPITAL LENDERS. Within 15 days after the end of each calendar quarter ending after the Closing Date, so long as any Letter of Credit shall have been outstanding during such calendar quarter, each Issuing Lender shall deliver to Administrative Agent a report setting forth for such calendar quarter the daily aggregate amount available to be drawn under the Letters of Credit issued by such Issuing Lender that were outstanding during such calendar quarter. Administrative Agent will promptly send copies of such reports to the Working Capital Lenders. (vi) WORKING CAPITAL LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT. Immediately upon the issuance of each Letter of Credit, each Working Capital Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Working Capital Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. 3.2 LETTER OF CREDIT FEES. Company agrees to pay the following amounts with respect to Letters of Credit issued hereunder: (i) (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to 0.125% per annum of the daily amount available to be drawn under such Letter of Credit and (b) a letter of credit fee, payable to Administrative Agent for the account of Working Capital Lenders (based upon their respective Pro Rata Shares), equal to (x) (1) in the case of Standby Letters of Credit, the applicable Eurodollar Rate Margin set forth in subsection 2.2A hereof for Working Capital Loans which are Eurodollar Rate Loans and (2) in the case of Trade Letters of Credit, 1.25%, in each case MULTIPLIED BY (y) the daily amount available from time to time to be drawn under such Letter of Credit, each such fronting fee or letter of credit fee to be payable in arrears on and to (but 73 excluding) each Quarterly Date and computed on the basis of a 360-day year for the actual number of days elapsed; and (ii) with respect to the issuance, amendment or transfer of each Letter of Credit and each payment of a drawing made thereunder (without duplication of the fees payable under clause (i) above), documentary and processing charges payable directly to the applicable Issuing Lender for its own account in accordance with such Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or payment, as the case may be or as otherwise agreed upon between Company and such Issuing Lender. For purposes of calculating any fees payable under clause (i) of this subsection 3.2, the daily amount available to be drawn under any Letter of Credit shall be determined as of the close of business on any date of determination. Promptly upon receipt by Administrative Agent of any amount described in clause (i)(b) of this subsection 3.2, Administrative Agent shall distribute to each Working Capital Lender its Pro Rata Share of such amount. 3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS PAID UNDER LETTERS OF CREDIT. A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. B. REIMBURSEMENT BY COMPANY OF AMOUNTS PAID UNDER LETTERS OF CREDIT. In the event an Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall immediately notify Company and Administrative Agent of the date payment thereunder shall be made (the "Reimbursement Date"), and Company shall reimburse such Issuing Lender on the Reimbursement Date in an amount in Dollars and in same day funds equal to the amount of such honored drawing; PROVIDED that, anything contained in this Agreement to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and such Issuing Lender prior to 11:00 A.M. (Chicago time) on the Reimbursement Date that Company intends to reimburse such Issuing Lender for the amount of such honored drawing with funds other than the proceeds of Working Capital Loans, Company shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Lenders to make Working Capital Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such honored drawing and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.4, Working Capital Lenders shall, on the Reimbursement Date, make Working Capital Loans that are Base Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse such Issuing Lender for the amount of such honored drawing; and PROVIDED, FURTHER that if for any reason proceeds of Working Capital Loans are not received by such Issuing Lender on the Reimbursement Date in an amount equal to the amount of such honored drawing, Company shall reimburse such Issuing Lender, on demand, but no earlier than one Business Day following the Reimbursement Date, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Working Capital Loans, if 74 any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Working Capital Lender from its obligation to make Working Capital Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it may have against any Working Capital Lender resulting from the failure of such Lender to make such Working Capital Loans under this subsection 3.3B. C. PAYMENT BY WORKING CAPITAL LENDERS OF UNREIMBURSED AMOUNTS PAID UNDER LETTERS OF CREDIT. (i) PAYMENT BY WORKING CAPITAL LENDERS. In the event that Company shall fail for any reason to reimburse any Issuing Lender as provided in subsection 3.3B in an amount equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each other Working Capital Lender of the unreimbursed amount of such honored drawing and of such other Working Capital Lender's respective participation therein based on such Working Capital Lender's Pro Rata Share. Each Working Capital Lender shall make available to such Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of such Issuing Lender specified in such notice, not later than 11:00 A.M. (Chicago time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Lender is located) after the date notified by such Issuing Lender. In the event that any Working Capital Lender fails to make available to such Issuing Lender on such business day the amount of such Working Capital Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Lender shall be entitled to recover such amount on demand from such Working Capital Lender together with interest thereon at the Federal Funds Effective Rate for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Working Capital Lender to recover from any Issuing Lender any amounts made available by such Working Capital Lender to such Issuing Lender pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Working Capital Lender constituted gross negligence or willful misconduct on the part of such Issuing Lender. (ii) DISTRIBUTION TO WORKING CAPITAL LENDERS OF REIMBURSEMENTS RECEIVED FROM COMPANY. In the event any Issuing Lender shall have been reimbursed by other Working Capital Lenders pursuant to subsection 3.3C(i) for all or any portion of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall distribute to each other Working Capital Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Working Capital Lender's Pro Rata Share of all payments subsequently received by such Issuing Lender from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Working Capital Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Working Capital Lender may request. 75 D. INTEREST ON AMOUNTS PAID UNDER LETTERS OF CREDIT. (i) PAYMENT OF INTEREST BY COMPANY. Company agrees to pay to each Issuing Lender, with respect to drawings honored under any Letters of Credit issued by it, interest on the amount paid by such Issuing Lender in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by Company (including any such reimbursement out of the proceeds of Working Capital Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period from the date such drawing is honored to but excluding the Business Day following the Reimbursement Date, the rate then in effect under this Agreement with respect to Working Capital Loans that are Base Rate Loans and (b) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Working Capital Loans that are Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i) shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. (ii) DISTRIBUTION OF INTEREST PAYMENTS BY ISSUING LENDER. Promptly upon receipt by any Issuing Lender of any payment of interest pursuant to subsection 3.3D(i) with respect to a drawing honored under a Letter of Credit issued by it, (a) such Issuing Lender shall distribute to each other Working Capital Lender, out of the interest received by such Issuing Lender in respect of the period from the date such drawing is honored to but excluding the date on which such Issuing Lender is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of Working Capital Loans pursuant to subsection 3.3B), the amount that such other Working Capital Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored under such Letter of Credit, and (b) in the event such Issuing Lender shall have been reimbursed by other Working Capital Lenders pursuant to subsection 3.3C(i) for all or any portion of such honored drawing, such Issuing Lender shall distribute to each other Working Capital Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Working Capital Lender's Pro Rata Share of any interest received by such Issuing Lender in respect of that portion of such honored drawing so reimbursed by other Working Capital Lenders for the period from the date on which such Issuing Lender was so reimbursed by other Working Capital Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company. Any such distribution shall be made to a Working Capital Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Working Capital Lender may request. 3.4 OBLIGATIONS ABSOLUTE. The obligation of Company to reimburse each Issuing Lender for drawings honored under the Letters of Credit issued by it and the obligations of Working Capital Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall, to the fullest extent 76 permitted under applicable law, be paid strictly in accordance with the terms of this Agreement under all circumstances, including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Working Capital Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender or other Lender or any other Person or, in the case of a Lender, against Company, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the applicable Issuing Lender under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (vi) any breach of this Agreement or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; PROVIDED, in each case, that payment by the applicable Issuing Lender under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of such Issuing Lender under the circumstances in question. 3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES. A. INDEMNIFICATION. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Lender, other than as a result of (a) the gross negligence or willful misconduct of such Issuing Lender as determined by a final judgment of a court of competent jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing 77 Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "GOVERNMENTAL ACTS"). B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any Issuing Lender, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Lender shall not be responsible for (except to the extent of its gross negligence or willful misconduct): (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Lender, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to Company. Notwithstanding anything to the contrary contained in this subsection 3.5, Company shall retain any and all rights it may have against any Issuing Lender for any liability arising solely out of the gross negligence or willful misconduct of such Issuing Lender or, subject to subsection 3.4, the failure of such Issuing Lender to make payment upon the proper presentation to it of documents strictly complying with the terms of any Letter of Credit. 3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Issuing Lender or Working Capital Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the 78 introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof (in the case of each Lender listed on the signature pages hereof and in the case of any other Lender if such change shall have affected a class of Lenders generally) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of any other Lender if such change shall not have affected a class of Lenders generally), or compliance by any Issuing Lender or Working Capital Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Lender or participations therein purchased by any Working Capital Lender; or (ii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Lender or Working Capital Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Lender or Working Capital Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Lender or Working Capital Lender (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Company shall pay to such Issuing Lender or Working Capital Lender, within 15 days after receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate such Issuing Lender or Working Capital Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Issuing Lender or Working Capital Lender shall deliver to Company a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Lender or Working Capital Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of Lenders to make Loans and the issuance of Letters of Credit hereunder are subject to the satisfaction of the following conditions: 4.1 CONDITIONS TO INITIAL LOANS. The obligations of Lenders to make the initial Loans to be made on the Closing Date are, in addition to the conditions precedent specified in subsection 4.4, subject to prior or concurrent satisfaction of the following conditions: 79 A. LOAN PARTY DOCUMENTS. On or before the Closing Date, Company shall, and shall cause Parent and Acquisition Co. to, deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender) the following with respect to Company or such Loan Party, as the case may be, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Certificate or Articles of Incorporation of such Person, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation and each other state in which such Person does a material amount of business and is qualified as a foreign corporation to do business and, to the extent applicable and generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Closing Date; (ii) Copies of the Bylaws of such Person, certified as of the Closing Date by an Authorized Officer of such Person or such Person's corporate secretary or assistant secretary; (iii) Resolutions of the Board of Directors of such Person approving and authorizing the execution, delivery and performance of the Loan Documents and the Related Agreements to which it is a party, and the consummation of the transactions contemplated by the foregoing, certified as of the Closing Date by an Authorized Officer of such Person or such Person's corporate secretary or assistant secretary as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates with respect to each Authorized Officer of such Person executing any Loan Document or authorized to execute any notice, request or other document that may be delivered pursuant thereto; (v) Executed originals of the Credit Agreement, any Notes requested by any Lender at least one Business Day prior to the Closing Date, the Parent Guaranty, the Parent Pledge Agreement, the Finance Co. Pledge Agreement, the Acquisition Co. Guaranty, the Collateral Account Agreement and the Investment Account Agreement; and (vi) Such other documents as Agents may reasonably request. B. PARENT CAPITALIZATION. Parent shall have received gross proceeds of not less than $65,000,000 from the sales of its common stock to DLJMB and its Subsidiaries and not less than $34,000,000 in gross proceeds from the sale of the Parent P-I-K Securities and Parent shall have contributed all such proceeds to Finance Co. as common equity. C. SUBORDINATED DEBT; CAPITAL CONTRIBUTIONS. Finance Co. shall have received gross proceeds of not less than $100,000,000 from the sale of the Senior Subordinated Bridge Notes or the Senior Subordinated Notes. 80 Finance Co. shall have contributed a portion of the proceeds received from Parent from the issuance and the sale of its common stock and the Parent PIK Securities, and the proceeds from the issuance and sale of the Senior Subordinated Bridge Notes or the Senior Subordinated Notes, as the case may be, together with the proceeds of the Term Loans made on the Closing Date, to Acquisition Co. and shall have made a loan to DAH with the balance of such proceeds, other than proceeds of Tranche B Term Loans deposited into the Investment Accounts, if any, and proceeds applied to pay transaction costs on the Closing Date, such loan to be evidenced by the Intercompany Notes which shall be pledged by Company to Administrative Agent pursuant to the Finance Co. Pledge Agreement), to be applied by DAH to repay in full the Existing DAH Debt (together with accrued interest and fees thereon and expenses incurred in connection therewith). To the extent the proceeds of the Tranche B Term Loans are not so utilized on the Closing Date, the excess proceeds shall be deposited by Company into the Investment Accounts pursuant to the Investment Account Agreement and invested in Cash Equivalents specified in the Investment Account Agreement as directed by Company until the Merger Date. D. TENDER OFFER MATTERS. (i) TENDER OFFER MATERIALS. Agents shall have received copies of all Tender Offer Materials and other documents in connection therewith filed with the Securities and Exchange Commission and the Tender Offer Materials shall be reasonably satisfactory in form and substance to Agents and Requisite Lenders (it being understood that the Tender Offer Materials as in effect on August 28, 1998 are so satisfactory). (ii) MERGER AGREEMENT IN FULL FORCE AND EFFECT. Agents shall have received copies of the Merger Agreement and the Merger Agreement shall be in full force and effect and no provision thereof shall have been modified or waived in any material respect (including, without limitation, any increase in the price to be paid for the DAH Common Stock to an amount in excess of $23.00 per share after the date hereof), in each case without the consent of Agents and Requisite Lenders, such consent not to be unreasonably withheld. (iii) CONSUMMATION OF TENDER OFFER; MINIMUM SHARES. Contemporaneously with the application of the proceeds of the initial Loans to be made on the Closing Date, the Tender Offer shall have been consummated in all material respects in accordance with the Tender Offer Materials and no condition to the Tender Offer shall have been waived without the consent of Agents. Not less than the Minimum Shares shall have been tendered and accepted for payment in the Tender Offer; the depository shall have delivered a certificate as to the number of shares of DAH Common Stock being held by it that have been validly tendered and not withdrawn as of the Closing Date and Company shall have delivered an Officer's Certificate as to the total number of shares of DAH Common Stock outstanding on a fully diluted basis as of the Closing Date. (iv) USE OF OTHER FUNDS. Acquisition Co. shall have deposited with the depository not less than the purchase price for the DAH Common Stock to be purchased in the Tender Offer in immediately available funds contemporaneously with the application of the Term Loans to be made on the Closing Date. 81 (v) OFFICER'S CERTIFICATES. Agents shall have an Officer's Certificate from Company to the effect that, to the best knowledge of Company, the representations and warranties of Acquisition Co. and DAH in the Merger Agreement are true, correct and complete in all material respects on and as of the date thereof. Agents shall have received Officer's Certificates from Company to the effect that (a) the Merger Agreement is in full force and effect and no provision thereof has been modified or waived in any respect without the consent of Agents and Requisite Lenders and (b) to the best knowledge of Company, each of the parties to the Merger Agreement has complied with all agreements and conditions contained in the Merger Agreement and any agreements or documents referred to therein required to be performed or complied with by each of them on or before the Closing Date and none of such Persons are in default in their performance or compliance with any of the terms or provisions thereof. (vi) NO MATERIAL LITIGATION. Except as set forth on Schedule 5.6 there shall be no material litigation pending which challenges the Tender Offer or the Merger in any respect. (vii) REPAYMENT OF EXISTING DAH DEBT. Contemporaneously with the application of the proceeds of the Loans to be made on the Closing Date, (a) Company shall have made an advance to DAH in an amount sufficient to, and DAH and its Subsidiaries shall have used the proceeds of such advance to, repay in full all Existing DAH Debt and Transaction Costs payable by DAH, (b) DAH and its Subsidiaries shall have terminated any commitments to lend or make other extensions of credit under the Existing DAH Debt and (c) DAH and its Subsidiaries shall have taken all action necessary to terminate or release all Liens securing the Existing DAH Debt in connection therewith, in each case on terms satisfactory to the Agents, or arrangements satisfactory to the Agents for the making of such advance, the repayment of such Existing DAH Debt, the termination of such commitments and the release of such Liens shall have been made. There shall be no existing Indebtedness of Company or its Subsidiaries outstanding after consummation of the Closing Date transactions other than Indebtedness permitted under subsection 7.1. (viii) COMPLIANCE WITH LAWS. The making of the Loans requested on the Closing Date shall not violate Regulation U or Regulation X of the Board of Governors of the Federal Reserve System. E. RELATED AGREEMENTS. The Agents shall have received copies of the Related Agreements in effect on the Closing Date. No provision of the Senior Subordinated Bridge Note Agreement or the Senior Subordinated Note Indenture, as the case may be, shall have been amended, modified or waived, from the most recent version thereof provided to the Agents prior to their execution hereof, in any respect determined by Agents to be material without the consent of Agents and Requisite Lenders, except in accordance with subsection 7.15. F. SECURITY INTERESTS IN SHARES OF FINANCE CO. AND ACQUISITION CO. Agents shall have received evidence satisfactory to each of them that Parent and Company shall have taken or caused to be taken all such actions, executed and delivered or caused to be made all such filings and agreements, documents and instruments, and made or caused to be made all such filings and 82 recordings that may be necessary or, in the opinion of Agents, desirable in order to create in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected First Priority security interest in all outstanding shares of the Finance Co. and Acquisition Co. pursuant to the Parent Pledge Agreement and the Finance Co. Pledge Agreement, respectively. Such actions shall include the following: (i) SCHEDULES TO COLLATERAL DOCUMENTS. Delivery to Administrative Agent of accurate and complete schedules to all of the applicable Collateral Documents; and (ii) STOCK CERTIFICATES AND INSTRUMENTS. Delivery to Administrative Agent of (a) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Agents) representing all capital stock pledged pursuant to the Parent Pledge Agreement and the Finance Co. Pledge Agreement and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to Agents) evidencing any Collateral. G. NO MATERIAL ADVERSE CHANGE. No material adverse change in the financial condition, operations, assets, business, properties or prospects of DAH and its Subsidiaries (excluding Avtech and its Subsidiaries), taken as a whole, since December 31, 1997, and of Avtech and its Subsidiaries, taken as a whole, since September 30, 1997, shall have occurred. There shall exist no pending or threatened material litigation, proceedings or investigations which could reasonably be expected to have a Material Adverse Effect. H. LIEN SEARCHES. Delivery to Administrative Agent of the results of a recent search of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of DAH and any of its Domestic Subsidiaries, together with copies of all such filings disclosed by such search. I. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders shall have received (i) originally executed copies of one or more favorable written opinions of Davis Polk & Wardwell, special New York counsel for Loan Parties, and of Spolin & Silverman, counsel for Loan Parties, dated as of the Closing Date in the form of EXHIBIT X-1 and X-2 annexed hereto and as to such other matters as Agents acting on behalf of Lenders may reasonably request. J. OPINIONS OF SYNDICATION AGENT'S COUNSEL. Lenders shall have received originally executed copies of one or more favorable written opinions of O'Melveny & Myers LLP, counsel to Syndication Agent, dated as of the Closing Date, substantially in the form of EXHIBIT XI annexed hereto and as to such other matters as Syndication Agent acting on behalf of Lenders may reasonably request. K. SOLVENCY CERTIFICATE. Company shall have delivered to Arranger and Agents a Solvency Certificate dated the Closing Date. L. REPRESENTATIONS AND WARRANTIES. Company shall have delivered to Agents an Officer's Certificate, in form and substance reasonably satisfactory to Agents, to the effect that the representations and warranties in Section 5 hereof are true, correct and complete in all 83 material respects on and as of the Closing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date). M. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF WAITING PERIODS, ETC. Company shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with all transactions contemplated by the Loan Documents and each of the foregoing shall be in full force and effect, in each case other than those the failure to obtain or maintain which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on all transactions contemplated by the Loan Documents. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending. N. FINANCIAL STATEMENTS. Lenders shall have received (i) unaudited financial statements of DAH and its Subsidiaries for the Fiscal Quarter ended June 30, 1998, (ii) pro forma consolidated balance sheets of DAH and its Subsidiaries as of June 30, 1998, giving pro forma effect to the Closing Date transactions and the Merger and (iii) projected financial statements (including balance sheets and statements of operations and cash flows) of DAH and its Subsidiaries through and including December 31, 2005. O. FEES. Company shall have paid to Agents, Lenders and Arranger the fees payable on the Closing Date. P. COMPLETION OF PROCEEDINGS. All documents executed or submitted pursuant hereto by or on behalf of Company or any of its Subsidiaries or any other Loan Parties shall be reasonably satisfactory in form and substance to Agents and their counsel; Agents and their counsel shall have received all information, approvals, opinions, documents or instruments that Agents or their counsel shall have reasonably requested. Each Lender hereby agrees that by its execution and delivery of its signature page hereto and by the funding of its Loans to be made on the Closing Date, such Lender approves of and consents to each of the matters set forth in this subsection 4.1 which must be approved by, or satisfactory to, Requisite Lenders, provided that, in the case of any agreement or document which must be approved by, or which must be satisfactory to, Requisite Lenders, a copy of such agreement or document shall have been delivered to such Lender on or prior to the Closing Date. 4.2 CONDITIONS TO LOANS MADE ON MERGER DATE. The obligations of Lenders to make the Loans to be made on the Merger Date are, in addition to the conditions precedent specified in subsection 4.4 (to the extent applicable in the case of such Loans), subject to the prior or concurrent satisfaction of the following conditions: 84 A. DAH DOCUMENTS. On or before the Merger Date, Company shall, or shall cause DAH and its Domestic Subsidiaries to, as the case may be, deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender) the following, each, unless otherwise noted, dated the Merger Date: (i) Certified copies of the Certificate or Articles of Incorporation of each of DAH and its Domestic Subsidiaries, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation and each other state in which DAH or any of its Domestic Subsidiaries does a material amount of business and is qualified as a foreign corporation to do business and, to the extent applicable and generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Merger Date; (ii) Copies of the Bylaws of each of DAH and its Domestic Subsidiaries, certified as of the Merger Date by an Authorized Officer of such Person or such Person's corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of DAH and its Domestic Subsidiaries approving and authorizing the execution, delivery and performance of the Loan Documents to which it is a party and the consummation of the transactions contemplated by the foregoing, each certified as of the Merger Date by an Authorized Officer of such Person or the corporate secretary or an assistant secretary of such Person as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of the officers of DAH and its Domestic Subsidiaries executing the Loan Documents to which it is a party or authorized to execute any notice, request or other document that may be delivered pursuant thereto; (v) Originals of the DAH Pledge Agreement, the Security Agreement, the Subsidiary Guaranty and the Subsidiary Pledge Agreements, executed by Company and each of its Domestic Subsidiaries; and (vi) Such other documents as Agent may reasonably request at least one Business Day prior to the Merger Date. B. SATISFACTION OF CONDITIONS IN SUBSECTION 4.1. Lenders shall have made the initial Loans on the Closing Date. C. CONSUMMATION OF MERGER. (i) All conditions to the Merger set forth in the Merger Agreement as in effect on the Merger Date shall have been satisfied or the fulfillment of any such conditions shall have been waived with the consent of Agents and Requisite Lenders; (ii) the Merger shall have become effective in accordance with the terms of the Merger Agreement and the Delaware General Corporation Law; 85 (iii) Administrative Agent shall have received satisfactory evidence of the filing of the documents with the Secretary of State of the State of Delaware effecting the Merger on the Merger Date; (iv) the aggregate cash consideration for the shares of DAH Common Stock to be acquired in any manner whatsoever in connection with the Tender Offer and the Merger shall not exceed $182,100,000; (v) Transaction Costs incurred as of the Merger Date (including any such amounts incurred on or before the Closing Date) shall not exceed $16,300,000; (vi) Administrative Agent shall have received satisfactory evidence that the Second Merger will occur immediately after the Merger on the Merger Date; and (vii) Administrative Agent shall have received an Officers' Certificate of Company to the effect set forth in clauses (i)-(vi) above. D. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. To the extent not otherwise satisfied pursuant to subsection 4.1F, Administrative Agent shall have received evidence satisfactory to each of them that Company and Subsidiary Guarantors shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings (other than the filing or recording of items described in clauses (iii), (iv) and (v) below) that may be necessary or, in the opinion of Agents, desirable in order to create in favor of Administrative Agent, for the benefit of Lenders, a valid and (upon such filing and recording) perfected First Priority security interest in the entire personal and mixed property Collateral. Such actions shall include the following: (i) SCHEDULES TO COLLATERAL DOCUMENTS. Delivery to Administrative Agent of accurate and complete schedules to all of the applicable Collateral Documents; (ii) STOCK CERTIFICATES AND INSTRUMENTS. Delivery to Administrative Agent of (a) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Agents) representing all capital stock pledged pursuant to the DAH Pledge Agreement and the Subsidiary Pledge Agreements and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to Agents) evidencing any Collateral; (iii) UCC FINANCING STATEMENTS AND FIXTURE FILINGS. Delivery to Administrative Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by Company or any Subsidiary Guarantor, as applicable, with respect to all personal and mixed property Collateral of such Loan Party, for filing in all jurisdictions as may be necessary or, in the opinion of Administrative Agent, desirable to perfect the security interests created in such Collateral pursuant to the Collateral Documents; and 86 (iv) OPINIONS OF LOCAL COUNSEL. Delivery to Agents of an opinion of counsel (which counsel shall be reasonably satisfactory to Agents) under the laws of the states of California, Washington, Arkansas and Pennsylvania with respect to the creation and perfection of the security interests in favor of Administrative Agent in such Collateral, in each case in form and substance reasonably satisfactory to Agents dated as of the Merger Date and setting forth substantially the matters in the form of opinion annexed hereto as EXHIBIT XXV. E. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders and their respective counsel shall have received (i) originally executed copies of a written opinion of Davis Polk & Wardwell, special New York counsel for Loan Parties, and Spolin & Silverman, counsel for Loan Parties, in form and substance reasonably satisfactory to Agents and Lenders, dated as of the Merger Date and setting forth substantially the matters in the opinions designated in EXHIBITS XXIV-1 and XXIV-2 annexed hereto. F. COMPANY SHALL HAVE PAID TO AGENTS, LENDERS AND ARRANGER THE FEES PAYABLE ON THE MERGER DATE. 4.3 CONDITIONS TO ACQUISITION LOANS. The obligation of Acquisition Lenders to make Acquisition Loans on each Funding Date are subject to the following further condition precedent that Company delivers a Permitted Acquisition Compliance Certificate and is otherwise in compliance subsection 7.7(vi). 4.4 CONDITIONS TO LOANS MADE ON EACH FUNDING DATE. The obligations of Lenders to make Loans on each Funding Date (other than, as to subsection B below, any Tranche A Term Loans made on the Merger Date) are subject to the following further conditions precedent: A. Administrative Agent shall have received, in accordance with the provisions of subsection 2.1B, an executed Notice of Borrowing signed by an Authorized Officer of Company. B. AS OF THAT FUNDING DATE: (i) The representations and warranties contained herein and in the other Loan Documents (other than, at any Funding Date other than the Closing Date, any such representations and warranties in subsection 5.2, to the extent they relate to the Related Agreements) shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; and (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default. 87 4.5 CONDITIONS TO LETTERS OF CREDIT. The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Lender is obligated to issue such Letter of Credit) is subject to the following conditions precedent: A. On or before the date of issuance of the initial Letter of Credit pursuant to this Agreement, the initial Loans shall have been made. B. On or before the date of issuance of such Letter of Credit, Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B(i), a Notice of Issuance of Letter of Credit signed by an Authorized Officer of Company, together with all other information specified in subsection 3.1B(i) and such other documents or information as the applicable Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. C. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.4B shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders and the Agents to enter into this Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce other Lenders to purchase participations therein, Company represents and warrants to each Lender and the Agents, on the Closing Date, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: 5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND SUBSIDIARIES. A. ORGANIZATION AND POWERS. Each Loan Party is a corporation or partnership duly organized, validly existing and, to the extent applicable, in good standing under the laws of its jurisdiction of incorporation or organization as specified in Schedule 5.1 annexed hereto except to the extent that the failure to be in good standing has not had and will not have a Material Adverse Effect. Each Loan Party has all requisite corporate or partnership power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents and the Related Agreements to which it is a party and to carry out the transactions contemplated thereby. B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and will not have a Material Adverse Effect. C. SUBSIDIARIES. All of the Subsidiaries of Company as of the Closing Date, after giving effect to the consummation of the Tender Offer and pro forma effect to the consummation of the Merger and the Second Merger, are identified in SCHEDULE 5.1 annexed hereto, as said SCHEDULE 5.1 may be supplemented from time to time pursuant to the provisions of subsection 6.1(xii). Each of the Subsidiaries of Company identified in SCHEDULE 5.1 is a corporation (or, in the case 88 of Tri-Star Technologies, a general partnership) duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation or organization set forth therein, has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such corporate power and authority has not had and will not have a Material Adverse Effect. Schedule 5.1 correctly sets forth the ownership interest of Company and each of its Subsidiaries as of the Closing Date, after giving effect to the consummation of the Tender Offer and pro forma effect to the consummation of the Merger and the Second Merger, in each of the Subsidiaries of Company identified therein. 5.2 AUTHORIZATION OF BORROWING, ETC. A. AUTHORIZATION OF BORROWING. The execution, delivery and performance of the Loan Documents and the Related Agreements have been duly authorized by all necessary actions on the part of each Loan Party that is a party thereto. B. NO CONFLICT. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements and the consummation of the transactions contemplated by the Loan Documents and the Related Agreements do not and will not (i) violate any provision of (x) any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries where such violations in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (y) the Certificate or the Articles of Incorporation or Bylaws of Company or any of Company's Subsidiaries or (z) any order, judgment or decree of any court or other agency of government binding on Company or any of Company's Subsidiaries where such violations in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (ii) conflict with, result in a breach of or constitute a default under any Contractual Obligation of Company or any of its Subsidiaries where such conflict, breach or default in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of Company's Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of or consent of any Person under any Contractual Obligation of Company or any of Company's Subsidiaries, except for such approvals or consents which will be obtained on or before the Merger Date or such approvals or consents the failure of which to obtain has not had and could not reasonably be expected to have a Material Adverse Effect. C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements and the consummation of the transactions contemplated by the Loan Documents and the Related Agreements do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body other than any such registrations, consents, approvals, notices or other actions (x) that have been made, obtained or taken on or prior to the date on which such registrations, consents, approvals, notices or other actions are required to be made, obtained or taken, as the case may be, and are in full force and 89 effect or (y) the failure of which to make, obtain or take has not had and could not reasonably be expected to have a Material Adverse Effect. D. BINDING OBLIGATION. Each of the Loan Documents and the Related Agreements has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 5.3 FINANCIAL CONDITION. Company has heretofore delivered to Lenders, at Lenders' request, the following financial statements and information: (i) the audited consolidated balance sheets of DAH and its Subsidiaries as at December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows of DAH and its Subsidiaries for the Fiscal Years ended December 31, 1997, 1996 and 1995, (ii) the unaudited consolidated balance sheet of DAH and its Subsidiaries as of June 30, 1998 and the related unaudited consolidated statements of income, stockholders' equity and cash flows of DAH and its Subsidiaries for the six months then ended and (iii) the audited consolidated balance sheets of Avtech Corporation and its Subsidiaries as at September 30, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows of Avtech Corporation and its Subsidiaries for the fiscal years ended September 30, 1997, 1996, and 1995, and (iv) the unaudited consolidated balance sheet of Avtech Corporation and its Subsidiaries as of June 25, 1998 and the related unaudited consolidated statements of income, stockholders' equity and cash flows of Avtech Corporation and its Subsidiaries for the period since October 1, 1997 then ended. All such statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to no footnote disclosure and changes resulting from normal year-end adjustments. 5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS. Since December 31, 1997, no event or change has occurred which constitutes, either in any case or in the aggregate, a Material Adverse Effect. Neither Company nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment except as permitted by subsection 7.5. 5.5 TITLE TO PROPERTIES; LIENS; REAL PROPERTY. A. TITLE TO PROPERTIES; LIENS. Except to the extent that failure to do so has not had and could not reasonably be expected to have a Material Adverse Effect, Company and its Subsidiaries have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal 90 property), or (iii) good title to (in the case of all other personal property), all of their respective properties and assets. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. B. REAL PROPERTY. As of the Closing Date, SCHEDULE 5.5 annexed hereto contains a true, accurate and complete list of (i) all real property owned by Company or any Domestic Subsidiary and (ii) all material leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Property Asset of any Loan Party, regardless of whether such Loan Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. 5.6 LITIGATION; ADVERSE FACTS. Except as set forth in SCHEDULE 5.6 annexed hereto, there are no actions, suits, proceedings, arbitrations or governmental investigations (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including any Environmental Claims) that are pending or, to the knowledge of Company, threatened against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries and that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or could reasonably be expected to prevent or unduly delay the Merger or the consummation of the Tender Offer. Neither Company nor any of its Subsidiaries is in violation of any applicable laws (including Environmental Laws) which violations, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 5.7 PAYMENT OF TAXES. Except to the extent permitted by subsection 6.3, all tax returns and reports of Company and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Company and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable, except any such taxes or charges which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established. 5.8 GOVERNMENTAL REGULATION. Neither Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940. 91 5.9 SECURITIES ACTIVITIES. Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. 5.10 EMPLOYEE BENEFIT PLANS. A. Company, each of its Subsidiaries and each of their respective ERISA Affiliates are in substantial compliance with all applicable material provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan except to the extent that any such noncompliance or nonperformance could not reasonably be expected to have a Material Adverse Effect. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code is so qualified except as could not reasonably be expected to have a Material Adverse Effect. B. No ERISA Event has occurred or is reasonably expected to occur that could reasonably be expected to result in a Material Adverse Effect. C. Except to the extent required under Section 4980B of the Internal Revenue Code, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Company, any of its Subsidiaries or any of their respective ERISA Affiliates, except as could not reasonably be expected to result in a Material Adverse Effect. D. As of the most recent valuation date for any Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities) could not reasonably be expected to have a Material Adverse Effect E. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA could not reasonably be expected to have a Material Adverse Effect. 5.11 ENVIRONMENTAL PROTECTION. Except as set forth in SCHEDULE 5.11 annexed hereto and except as to matters that, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (i) neither Company nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or 92 settlement agreement with any Person relating to (a) any current Environmental Law, (b) any Environmental Claim, or (c) any Hazardous Materials Activity; (ii) neither Company nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9604) or any comparable state law; (iii) there are and, to Company's knowledge, have been no conditions, occurrences, or Hazardous Materials Activities at the Facilities or otherwise relating to the operation of the Company or any of its Subsidiaries which could reasonably be expected to form the basis of an Environmental Claim against Company or any of its Subsidiaries; (iv) neither Company's nor its Subsidiaries' operations involve the transportation, storage or disposal of Hazardous Materials so as to require a permit for such operations under RCRA Part B (42 U.S.C. Section 6925 and 40 C.F.R. 270.1 et seq.) or involve transporting hazardous materials generated by a third party for disposal; and (v) compliance with all current requirements pursuant to or under Environmental Laws will not, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect. 5.12 EMPLOYEE MATTERS. There is no strike or work stoppage in existence or threatened affecting Company or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 5.13 SOLVENCY. On the Closing Date and on the Merger Date, after giving effect to the consummation of the Tender Offer and the Mergers, respectively, each Loan Party is Solvent. 5.14 MATTERS RELATING TO COLLATERAL. A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and delivery of the Collateral Documents by Loan Parties, together with actions taken pursuant to subsections 4.1F, 4.2F, 4.2G, 6.8 and 6.9 are effective or, in the case of subsections 4.2F and 4.2G as of the Merger Date, will be effective, or in the case of subsections 6.8 and 6.9 at the time of the taking of such actions, will be effective, once taken, to create in favor of Administrative Agent for the benefit of Lenders, as security for the respective Secured Obligations (as defined in the applicable Collateral Document in respect of any Collateral), a valid and perfected First Priority Lien on the Collateral covered thereby. B. GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the pledge or grant by any Loan Party of the Liens purported to be created in favor of Administrative Agent pursuant to any of the Collateral Documents or (ii) the exercise by 93 Administrative Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to any of the Collateral Documents or created or provided for by applicable law), except for filings or recordings contemplated by subsection 5.14A and except as may be required, in connection with the disposition of any Pledged Collateral, by laws generally affecting the offering and sale of securities. C. ABSENCE OF THIRD-PARTY FILINGS. On and after the Closing Date, except (a) such as may have been filed in favor of Administrative Agent or with respect to Liens permitted by this Agreement or (b) precautionary filings in respect of operating leases, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO, in each case other than filings in respect of which Administrative Agent shall have received appropriate termination statements or releases. D. MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant to the Collateral Documents does not violate Regulation U or X of the Board of Governors of the Federal Reserve System. E. INFORMATION REGARDING COLLATERAL. All information supplied to Administrative Agent by or on behalf of any Loan Party with respect to any of the Collateral (in each case taken as a whole with respect to all Collateral) is accurate and complete in all material respects. 5.15 DISCLOSURE. A. LOAN DOCUMENTS. No representation or warranty of any Loan Party contained in any Loan Document or in any other document, certificate or written statement furnished to Lenders by or on behalf of Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not materially misleading in light of the circumstances in which the same were made. Any term or provision of this Section to the contrary notwithstanding, insofar as any of the representations and warranties described above includes assumptions, estimates, projections or opinions, no representation or warranty is made herein with respect thereto; PROVIDED, HOWEVER, that to the extent any such assumptions, estimates, projections or opinions are based on factual matters, Company has reviewed such factual matters and nothing has come to its attention in the context of such review which would lead it to believe that such factual matters were not or are not true and correct in all material respects or that such factual matters omit to state any material fact necessary to make such assumptions, estimates, projections or opinions not misleading in any material respect. B. TENDER OFFER MATERIALS. The Tender Offer Materials, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact (known to Company or any of its Subsidiaries, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. 94 5.16 YEAR 2000 COMPLIANCE. Company has (i) initiated a review and assessment of its and its Subsidiaries' business and operations (including those affected by suppliers and vendors) that Company believes could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Company or Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan substantially in accordance with that timetable. Company believes that its own computer applications that are material to its or its Subsidiaries' business and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant") except to the extent that a failure to do so could not reasonably be expected to have Material Adverse Effect. SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to Agents and Lenders: (i) QUARTERLY FINANCIALS: as soon as available and in any event within 60 days after the end of each Fiscal Quarter, the consolidated balance sheet of Company and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statements of income and stockholders equity of Company and its Subsidiaries for such Fiscal Quarter and statements of income, stockholders equity and cash flows for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year (it being understood that the foregoing requirement may be satisfied by delivery of the Company's report to the Securities and Exchange Commission on Form 10-Q, if any), together with, if any pro forma financial information has been used in connection with determining compliance with this Agreement, a reconciliation of such pro forma financial information with the financial information contained in such financial statements, all in reasonable detail and certified by the president, chief executive officer, treasurer, or chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash 95 flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; (ii) YEAR-END FINANCIALS: as soon as available and in any event within 105 days after the end of each Fiscal Year, (a) the consolidated balance sheet of Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated statements of income, stockholders equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year (it being understood that the foregoing requirement may be satisfied by delivery of the Company's report to the Securities and Exchange Commission on Form 10-K, if any) together with, if any pro forma financial information has been used in connection with determining compliance with this Agreement, a reconciliation of such pro forma financial information with the financial information contained in such financial statements, all in reasonable detail and reported on by one of the Big Five accounting firms or other independent certified public accountants of recognized national standing selected by Company and satisfactory to Agents, which report shall state (without Impermissible Qualification) that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iii) OFFICER'S AND COMPLIANCE CERTIFICATES: together with each delivery of financial statements pursuant to subdivisions (i) and (ii) above, (a) an Officer's Certificate of Company stating that the signers have reviewed the relevant terms of this Agreement and that no condition or event that constitutes an Event of Default or Potential Event of Default exists, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take with respect thereto and (b) a Compliance Certificate executed by the president, chief executive officer, treasurer, or chief financial officer of Company; (iv) MARGIN DETERMINATION CERTIFICATE: together with each delivery of financial statements pursuant to subdivisions (i) and (ii) above, a Margin Determination Certificate demonstrating in reasonable detail, and calculating in accordance with subsections 1.2(b) and 1.2(c), the Consolidated Leverage Ratio on the last day of the accounting period covered by such financial statements; (v) ACCOUNTANTS' CERTIFICATION: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (ii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit examination has included a review of the terms of subsections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7 and 7.8 of this Agreement as they relate to accounting matters, and (b) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default 96 has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; PROVIDED that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination; (vi) SEC FILINGS AND PRESS RELEASES: promptly upon their becoming available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Parent or the Company to its security holders (other than DLJMB or Parent, respectively), and (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Parent or any of its Subsidiaries with any national securities exchange or with the Securities and Exchange Commission; (vii) EVENTS OF DEFAULT, ETC.: promptly and in any event within seven (7) Business Days after the president, chief executive officer, treasurer, assistant treasurer, controller, chief financial officer or any other Authorized Officer of Company obtains knowledge of any condition or event that constitutes an Event of Default or Potential Event of Default, an Officer's Certificate specifying the nature and period of existence of such Event of Default or Potential Event of Default and what action Company has taken, is taking and proposes to take with respect thereto; (viii) LITIGATION OR OTHER PROCEEDINGS: (a) promptly upon the president, chief executive officer, treasurer, assistant treasurer, controller, chief financial officer or any other Authorized Officer of Company obtaining knowledge of (X) the institution of, or non-frivolous threat of, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries (collectively, "PROCEEDINGS") not previously disclosed in writing by Company to Lenders or (Y) any material development in any Proceeding that, in any case: (1) has a reasonable possibility of giving rise to a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof and promptly after request by Agents such other information as may be reasonably requested by Agents to enable Agents and their respective counsel to evaluate any of such Proceedings; (ix) ERISA EVENTS: promptly upon becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event that could reasonably be expected to result in a Material Adverse Effect, a written notice specifying the nature thereof, what action Company, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or 97 threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (x) ERISA NOTICES: with reasonable promptness, copies of all notices received by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event that could reasonably be expected to result in a Material Adverse Effect; (xi) FINANCIAL PLANS: as soon as practicable and in any event no later than 30 days after the beginning of each Fiscal Year, a consolidated budget for such Fiscal Year, in the form prepared by Company consistent with its past practices (the "FINANCIAL PLAN"); (xii) NEW SUBSIDIARIES: promptly upon any Person becoming a Subsidiary of Company, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of Company and (b) all of the data required to be set forth in SCHEDULE 5.1 with respect to all Subsidiaries of Company (it being understood that such written notice shall be deemed to supplement SCHEDULE 5.1 for all purposes of this Agreement); (xiii) UCC SEARCH REPORT: As promptly as practicable after the date of delivery to Administrative Agent of any UCC financing statement executed by any Loan Party pursuant to subsection 4.2D(iii) or 6.8A, copies of completed UCC searches evidencing the proper filing, recording and indexing of all such UCC financing statement and listing all other effective financing statements that name such Loan Party as debtor, together with copies of all such other financing statements not previously delivered to Administrative Agent by or on behalf of Company or such Loan Party; (xiv) OTHER INFORMATION: with reasonable promptness, such other information and data with respect to Company or any of its Subsidiaries as from time to time may be reasonably requested by any Lender. 6.2 LEGAL EXISTENCE, ETC. Except as permitted under subsection 7.7, Company will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its legal existence and all rights and franchises material to its business except where failure to keep in full force and effect such rights and franchises could not reasonably be expected to have a Material Adverse Effect; PROVIDED, HOWEVER that neither Company nor any of its Subsidiaries shall be required to preserve the existence of any Subsidiary if Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of Company and its Subsidiaries, and that the loss thereof is not disadvantageous in any material respect to Company or Lenders. 6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. Company will, and will cause each of its Subsidiaries to, pay all material taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or 98 in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all material claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; PROVIDED that no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. 6.4 MAINTENANCE OF PROPERTIES; INSURANCE; APPLICATION OF NET INSURANCE/CONDEMNATION PROCEEDS. A. MAINTENANCE OF PROPERTIES. Except to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect, Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Company and its Subsidiaries (including all Intellectual Property) and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof unless Company determines in good faith that the continued maintenance of any of its Properties is no longer economically desirable. B. INSURANCE. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Subsidiaries as may customarily be carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations similarly situated in the industry. Without limiting the generality of the foregoing, Company will maintain or cause to be maintained (i) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (ii) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times satisfactory to Agents in their commercially reasonable judgment. Each such policy of insurance shall (a) name Administrative Agent for the benefit of Lenders as an additional insured thereunder as its interests may appear and (b) in the case of each casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Agents, that names Administrative Agent for the benefit of Lenders as the loss payee thereunder for any covered loss in excess of $250,000 and provides for at least 30 days prior written notice to Agents of any modification or cancellation of such policy. C. EVIDENCE OF INSURANCE. Upon request of Administrative Agent, Company shall deliver to Administrative Agent a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 6.4B is in full 99 force and effect and that Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 6.4B. 6.5 INSPECTION RIGHTS. Company shall, and shall cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of Company or of any of its Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and, after notice to the Company and provision of an opportunity to participate in such discussions, independent public accountants, all upon reasonable notice and at such reasonable times and intervals during normal business hours and as often as may reasonably be requested, but, unless an Event of Default shall have occurred and be continuing not more frequently than once in each Fiscal Year. Subject to subsection 10.2, the cost and expenses of each such visit shall be borne by the applicable Lender. 6.6 COMPLIANCE WITH LAWS, ETC. A. GENERAL. Company shall comply, and shall cause each of its Subsidiaries to comply, in all material respects, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including all Environmental Laws), noncompliance with which could reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect. B. ENVIRONMENTAL COVENANT. The Company will and will cause each of its Subsidiaries to: (i) Use and operate all of its Facilities and properties in compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other Governmental Authorizations relating to environmental matters in effect and remain in compliance therewith, and handle all Hazardous Materials in compliance with all applicable Environmental Laws, in each case except where the failure to comply with the terms of this clause would not reasonably be expected to have a Material Adverse Effect; (ii) Promptly notify the Agents and provide copies of all written claims, complaints, notices or inquiries relating to the condition of its Facilities or relating to compliance with Environmental Laws which relate to environmental matters which would have, or would reasonably be expected to have, a Material Adverse Effect, and promptly cure and have dismissed with prejudice any material actions and proceedings relating to compliance with Environmental Laws, except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books; and (iii) Provide such information and certificates which the Agents may reasonably request from time to time to evidence compliance with this SECTION 6.7. 100 6.7 EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL DOCUMENTS BY CERTAIN SUBSIDIARIES AND FUTURE SUBSIDIARIES; IP COLLATERAL. A. EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL DOCUMENTS. In the event that any Person becomes a Subsidiary of Company after the Merger Date (other than a Foreign Subsidiary and other than a Domestic Subsidiary that is a Non-Wholly-Owned Subsidiary), Company will promptly notify Administrative Agent of that fact and cause such Subsidiary to execute and deliver to Administrative Agent a Subsidiary Pledge Agreement, a counterpart of the Subsidiary Guaranty and an acknowledgement to the Security Agreement and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 4.2D) as may be necessary or, in the opinion of Agents, desirable to create in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on all of the personal and mixed property assets of such Subsidiary described in the applicable forms of Collateral Documents; PROVIDED that no such Subsidiary shall be required to pledge pursuant to a Subsidiary Pledge Agreement more than 65% of the total combined voting power of all classes of securities of any Foreign Subsidiary held by such Subsidiary entitled to vote. B. SUBSIDIARY CHARTER DOCUMENTS, LEGAL OPINIONS, ETC. Company shall deliver to Administrative Agent, together with such Loan Documents, (i) certified copies of such Subsidiary's Certificate or Articles of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation and each other state in which such Person is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each to be dated a recent date prior to their delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws certified by its secretary or an assistant secretary as of a recent date prior to their delivery to Administrative Agent, (iii) a certificate executed by the secretary or an assistant secretary of such Subsidiary as to (a) the fact that the attached resolutions of the Board of Directors of such Subsidiary approving and authorizing the execution, delivery and performance of such Loan Documents are in full force and effect and have not been modified or amended and (b) the incumbency and signatures of the officers of such Subsidiary executing such Loan Documents, and (iv) a favorable opinion of counsel to such Subsidiary, in form and substance satisfactory to Agents and their respective counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan Documents against such Subsidiary, (d) such other matters (including matters relating to the creation and perfection of Liens in any Collateral pursuant to such Loan Documents) as Agents may reasonably request, all of the foregoing to be satisfactory in form and substance to Agents and their respective counsel. C. IP COLLATERAL. If any Subsidiary (other than a Foreign Subsidiary and Domestic Subsidiaries that are Non-Wholly-Owned Subsidiaries) becomes an owner of any Intellectual Property after the Merger Date, Company shall cause such Subsidiary to promptly execute and deliver to Administrative Agent an acknowledgement to the Security Agreement and all cover sheets and executed grants of trademark security interest, grants of patent security interest and grants of copyright security interest and such other documents or instruments required to be filed with the PTO and the CO as Administrative Agent shall deem appropriate and take such further 101 action and execute such further documents and instruments as may be necessary, or in the opinion of Administrative Agent, desirable to create in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on such Intellectual Property. 6.8 FUTURE LEASED PROPERTY AND FUTURE ACQUISITIONS OF REAL PROPERTY: FUTURE ACQUISITION OF OTHER PROPERTY. A. In connection with any Leasehold Property, Company shall, and shall cause each of its Subsidiaries (other than Foreign Subsidiaries and Domestic Subsidiaries that are Non-Wholly Owned Subsidiaries) to use its (and their) commercially reasonable efforts (which shall not require the expenditure of cash (other than the payment of the respective attorneys fees of Company and the lessor) or the making of any material concessions under the relevant lease) to deliver to Administrative Agent a waiver for the benefit of Administrative Agent in form and substance reasonably satisfactory to Administrative Agent executed by the lessor of any real property that is to be leased by Company or such Subsidiary for a term in excess of one year in any state which by statute grants such lessor a "landlord's" (or similar) Lien which is superior to Administrative Agent's and which grants to Administrative Agent a license to enter the leased property and remove any and all personal property, if the value of such personal property of Company or its Subsidiaries to be held at such leased property exceeds (or it is anticipated that the value of such personal property will, at any point in time during the term of such leasehold term, exceed) $2,000,000. B. In the event that Company or any of its Subsidiaries (other than Foreign Subsidiaries or Domestic Subsidiaries that are Non-Wholly-Owned Subsidiaries) shall acquire any real property having a value as determined in good faith by Administrative Agent in excess of $2,000,000 (or in the case of leased property, in the event that Company is able to deliver the waivers and consents described in subsection 6.8C in connection with the leases described therein), Company or the applicable Subsidiary shall, promptly after such acquisition or consent, execute a Mortgage and provide Administrative Agent with (i) evidence of the completion (or satisfactory arrangements for the completion) of all recordings and filings of such Mortgage as may be necessary or, in the reasonable opinion of Administrative Agent, desirable effectively to create a valid, perfected, First Priority Lien, subject to the Liens permitted by subsection 7.2, against the property purported to be covered thereby, (ii) mortgagee's title insurance policy or policies in favor of Administrative Agent and the Lenders in amounts and in form and substance and issued by insurers, reasonably satisfactory to the Agents, with respect to the property purported to be covered by such Mortgage, insuring that title to such property is indefeasible and that the interests created by the Mortgage constitute valid first Liens thereon free and clear of all defects and encumbrances other than as permitted by Section 7.2 or as approved by the Agents, and such policies shall also include, to the extent available, a revolving credit endorsement and such other endorsements as the Agents shall reasonably request and shall be accompanied by evidence of the payment in full of all premiums thereon, and (iii) such other approvals, opinions, or documents as the Agents may reasonably request. C. As soon as reasonably practical after the consummation of the Merger, Company or its applicable Subsidiary shall, in respect of each of the leased properties listed on Schedule 6.8, and in the event Company or any of its Subsidiaries (other than Foreign Subsidiaries or Domestic Subsidiaries that are Non-Wholly-Owned Subsidiaries) shall become a lessee under any lease of 102 real property covering 10,000 square feet of building space and having an unexpired lease term (including options to extend such lease term) of three years or longer, Company or the applicable Subsidiary shall, use its commercially reasonable efforts (which shall not require the expenditure of cash (other than the payment of the respective attorneys fees of Company and the lessor) or the making of any material concessions under the relevant lease) to cause the lessor to agree (during the negotiation of such lease if such lease is entered into after the Merger Date), for the benefit of Administrative Agent (i) to the matters set forth in subsection 6.8A, (ii) that without any further consent of such lessor or any further action on the part of the Loan Party holding the lessee's interest in such property, such lessee's interest in such property may be encumbered pursuant to a Mortgage and may be assigned to the purchaser at a foreclosure sale or in a transfer in lieu of such a sale (and to a subsequent third party assignee if any Agent, any Lender, or an Affiliate of either so acquires such lessee's interest in such property), and (iii) that such lessor shall not terminate such lease as a result of a default by such Loan Party thereunder without first giving Agents notice of such default and at least 60 days (or, if such default cannot reasonably be cured by Agents within such period, such longer period as may reasonably be required) to cure such default. 6.9 MERGER. Company shall cause Acquisition Co. and DAH to comply with all material covenants set forth in the Merger Agreement applicable prior to the consummation of the Merger. Company shall cause the Merger to be consummated in accordance with the terms and conditions of the Merger Agreement and the Tender Offer Materials and shall cause each of the conditions set forth in subsection 4.2 to be fulfilled as soon as practicable and, in any event, no later than 150 calendar days after the Closing Date. In the event that the DAH Common Stock to be purchased concurrently with receipt of the proceeds of the Loans on the Closing Date shall represent, in the aggregate, not less than 90% of the outstanding shares of DAH Common Stock so as to permit Company to cause the Merger to occur in accordance with the terms of the Merger Agreement and Section 253 of the Delaware General Corporation Law, Company shall promptly cause the Merger to occur. 6.10 SECOND MERGER. Company shall cause the Second Merger to be consummated on the Merger Date immediately after the Merger. 6.11 YEAR 2000 COMPLIANCE. Company will promptly notify Administrative Agent in the event Company discovers or determines that any computer application (including those of its suppliers and vendors) that is material to its or its Subsidiaries' business and operations will not be Year 2000 compliant as of January 1, 2000, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 103 6.12 PTO AND CO COVER SHEETS, ETC. Company will deliver to Agents no later than 7 days after the Merger Date instruments or documents, in appropriate form for filing with the PTO and/or the CO, sufficient to create and perfect a security interest in all IP Collateral owned as of the Merger Date by Company and its Subsidiaries (other than Foreign Subsidiaries and Domestic Subsidiaries that are Non-Wholly-Owned Subsidiaries). 6.13 MORTGAGES. A. With respect to the Merger Date Leasehold Mortgaged Properties, as soon as practicable after Company or the applicable Subsidiary is able to obtain the agreement of the applicable lessor referred to in subsection 6.8C, and with respect to the Merger Date Fee Mortgaged Properties, as soon as practicable after the Merger Date but in no event later than 7 days after the Merger Date, Company shall deliver to Agents counterparts of the Mortgages covering such Merger Date Leasehold Mortgaged Properties or Merger Date Fee Mortgaged Properties, as the case may be, each dated as of the date of such delivery, duly executed by Company or the applicable Subsidiary in appropriate form for recording, together with such other documents and instruments in appropriate form for filing of such Mortgage as may be necessary or, in the reasonable opinion of Administrative Agent, desirable effectively to create a valid, perfected, First Priority Lien, subject to Liens permitted by Section 7.2, against the properties purported to be covered thereby. B. As soon as practicable after delivery of each Mortgage pursuant to subsection 6.13A, Company shall deliver to Agents (i) mortgagee's title insurance policies in favor of the Agents and the Lenders in amounts and in form and substance and issued by insurers, reasonably satisfactory to the Agents, with respect to the property purported to be covered by such Mortgage, insuring that title to such property is indefeasible and that the interests created by such Mortgage constitute valid First Priority Liens thereon free and clear of all defects and encumbrances other than as permitted by Section 7.2 or as approved by the Agents, and such policies shall also include, to the extent available, a revolving credit endorsement and such other endorsements as Administrative Agent shall reasonably request and shall be accompanied by evidence of the payment in full of all premiums thereon and (ii) and such other approvals, opinions or documents as the Agents may reasonably request. Section 7. COMPANY'S NEGATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 7. 104 7.1 INDEBTEDNESS. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or otherwise become or remain liable with respect to, any Indebtedness, except: (i) Company may become and remain liable with respect to the Obligations; (ii) Company and its Subsidiaries may become and remain liable with respect to any obligations constituting Indebtedness and actually arising pursuant to Contingent Obligations permitted pursuant to Section 7.4; (iii) Company and its Subsidiaries may become and remain liable with respect to Indebtedness in respect of Capital Leases and other purchase money Indebtedness incurred to finance the acquisition or improvement of fixed assets, in an aggregate amount not exceeding $7,500,000; (iv) Intercompany Indebtedness (i) of Company or any Domestic Subsidiary of Company owing to Company or any Subsidiary of Company, and (ii) of any Foreign Subsidiary of Company owing to (x) any other Foreign Subsidiary or (y) Company or any Domestic Subsidiary of Company; PROVIDED that in respect of any such Indebtedness (other than any such Indebtedness incurred to finance a Permitted Acquisition) described in this CLAUSE (ii)(y), the aggregate principal amount of such Indebtedness, when taken together with the aggregate amount at such time of all outstanding Investments in Foreign Subsidiaries made pursuant to subsection 7.3(xiii), shall not exceed at any time outstanding $10,000,000; PROVIDED that (a) if requested by Administrative Agent, all intercompany Indebtedness shall be evidenced by promissory notes which shall be delivered to Administrative Agent as Collateral hereunder, (b) all intercompany Indebtedness owed by Company or by a Subsidiary Guarantor to any Subsidiary of Company that is not a Subsidiary Guarantor shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of an intercompany subordination agreement in the form of Exhibit XXX attached hereto; (v) Company and its Subsidiaries, as applicable, may remain liable with respect to Indebtedness described in SCHEDULE 7.1 annexed hereto and refinancings and replacements thereof in a principal amount not exceeding the principal amount of the indebtedness so refinanced or replaced and with an average life to maturity of not less than the then average life to maturity of the Indebtedness so refinanced or replaced; (vi) Company may become and remain liable with respect to up to $100,000,000 in aggregate principal amount of Indebtedness evidenced by the Senior Subordinated Bridge Notes (as well as any payment-in-kind Senior Subordinated Bridge Notes issued in lieu of cash interest thereon) and Indebtedness evidenced by the Senior Subordinated Notes, so long as, if Company issued the Senior Subordinated Bridge Notes on the Closing Date, all of the net proceeds of the Senior Subordinated Notes are used to 105 refinance in whole or in part an equal principal amount of the Senior Subordinated Bridge Notes then outstanding; (vii) Indebtedness of Tri-Star Electronics Europe SA incurred pursuant to a working capital facility not to exceed U.S.$2,000,000 (of the equivalent thereof in Swiss Francs) at any time outstanding (except if such excess is caused solely by changes in exchange rates and is eliminated within five Business Days of its occurrence) and other Indebtedness of Foreign Subsidiaries in an aggregate outstanding principal amount which does not exceed $10,000,000 at any time outstanding; (viii) Assumed Indebtedness of Company and its Subsidiaries in an aggregate principal amount at any time outstanding not to exceed $5,000,000; and (ix) Company and its Subsidiaries may become and remain liable with respect to other Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding. 7.2 LIENS AND RELATED MATTERS. A. PROHIBITION ON LIENS. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, except: (i) Permitted Encumbrances; (ii) Liens granted pursuant to the Collateral Documents, including Liens securing payment of any Hedging Obligations owed to any Person that, at the time such Hedging Obligation was contracted for, was a Lender or an Affiliate of any Lender; (iii) Liens described in Schedule 7.2 annexed hereto and Liens securing extensions, renewals or replacements of the Indebtedness or other obligations which such identified Liens secure; PROVIDED that no such extension, renewal or replacement shall increase the obligations secured by such Lien or extend such Lien to additional assets; (iv) Liens securing Indebtedness permitted pursuant to subsection 7.1(iii); provided that the principal amount of such Indebtedness does not exceed at the time of acquisition or leasing of the related asset the fair market value of the asset so acquired or leased and that such Lien is limited solely to the asset so acquired or leased in connection with the incurrence of such Indebtedness; (v) Liens on the assets of any Foreign Subsidiary securing the repayment of the Indebtedness permitted pursuant to subsection 7.1(iv)(ii), 7.1(vii) or 7.1(ix); (vi) Liens in the nature of trustees' Liens granted pursuant to any indenture governing any Indebtedness permitted by Section 7.1, in each case in favor of the trustee 106 under such indenture and securing only obligations to pay compensation to such trustee, to reimburse its expenses and to indemnify it under the terms thereof; (vii) Liens of sellers of goods to Company and any of its Subsidiaries arising solely under Article 2 of the UCC or similar provisions of applicable law in the ordinary course of business, covering only the goods sold and securing only the unpaid purchase price for such goods and related expenses; (viii) Liens securing Assumed Indebtedness of Company and its Subsidiaries permitted pursuant to Section 7.1(viii), provided, however, that (i) any such Liens attach only to the property of the Subsidiary acquired, or the property acquired, in connection with such Assumed Indebtedness and shall not attach to any assets of Company or any of its Subsidiaries theretofore existing and (ii) the Assumed Indebtedness and other secured Indebtedness of Company and its Subsidiaries secured by any such Lien shall not exceed 100% of the fair market value of the assets being acquired in connection with such Assumed Indebtedness; (ix) Liens securing reimbursement obligations in respect of trade letters of credit, which Liens are limited to the goods purchased with, or whose purchase was supported by, such letters of credit; and (x) Other Liens securing Indebtedness and other obligations in an aggregate amount not to exceed $7,500,000 at any time outstanding. Nothing in this subsection 7.2 shall prohibit the sale, assignment, transfer, conveyance or other disposition of any Margin Stock owned by Company or any of its Subsidiaries at its fair value (as determined in good faith by its Board of Directors) so long as proceeds are held as Cash or Cash Equivalents or the creation, incurrence, assumption or existence of any Lien on or with respect to any Margin Stock. B. NO FURTHER NEGATIVE PLEDGES. Except (x) with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale and (y) customary limitations in respect of the Company and its Subsidiaries contained in any agreement with respect to Indebtedness incurred in reliance on subsections 7.1(ii), (iv), (vi), (vii) or (viii), and (z) restrictions or limitations contained in any partnership agreement or joint venture agreement to which Company or any of its Subsidiaries are a party on the ability to create or assume Liens on any assets of the relevant partnership or joint venture, neither Company nor any of its Subsidiaries shall enter into any agreement (other than an agreement prohibiting only the creation of Liens securing Subordinated Indebtedness) prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. C. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER SUBSIDIARIES. Except (x) as provided herein, (y) customary limitations and prohibitions in any agreement with respect to Indebtedness incurred in reliance on Section 7.1(iv)(ii)(x), (vii), or (viii) and (z) any such encumbrance or restriction contained in any partnership or joint venture agreement to which Company or any of its Subsidiaries is a party, Company will not, and will not permit any of its 107 Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of such Subsidiary's capital stock owned by Company or any other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, or (iii) make loans or advances to Company or any other Subsidiary of Company. 7.3 INVESTMENTS. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, except: (i) Company and its Subsidiaries may make and own Investments in Cash Equivalents (as determined on the date of acquisition thereof); (ii) (a) Company and its Subsidiaries may continue to own the Investments owned by them as of the Closing Date in any Subsidiaries of Company; (b) Company and its Domestic Subsidiaries may make additional Investments in Company or Subsidiary Guarantors (including without limitation any such Investments necessary in order to consummate the Tender Offer in accordance with the Tender Offer Materials, the Merger in accordance with the Merger Agreement and the Second Merger) subject to compliance with subsections 6.7 and 6.8; (c) any Foreign Subsidiary may make additional Investments in any other Foreign Subsidiary; and (d) Acquisition Co. may purchase the DAH Common Stock pursuant to the Tender Offer in accordance with the Tender Offer Materials; (iii) Company and its Subsidiaries may make intercompany loans to the extent permitted under subsection 7.1(iv) and incur Contingent Obligations permitted by subsection 7.4; (iv) Company and its Subsidiaries may make Investments in Wholly-Owned Subsidiaries that are Domestic Subsidiaries in an aggregate amount not exceeding $22,000,000 in order to consummate an acquisition substantially on the terms described to the Syndication Agent prior to the date hereof. (v) Company and its Subsidiaries may continue to own the Investments owned by them as of the Closing Date and described in Schedule 7.3 annexed hereto and extensions or renewals thereof, provided that no such extension or renewal shall be made in reliance on this clause (v) if it would (x) increase the amount of such Investment at the time of such renewal or extension or (y) result in a Potential Event of Default or an Event of Default hereunder; (vi) Company and its Subsidiaries may make and own Investments received in connection with Asset Sales permitted pursuant to subsection 7.7(xii); 108 (vii) Investments constituting Consolidated Capital Expenditures (and any capital expenditures excluded from the definition of Consolidated Capital Expenditures pursuant to clause (y) thereof); (viii) Investments made by Company or any of its Subsidiaries in Permitted Acquisitions in accordance with subsection 7.7(viii); (ix) Investments arising under or in connection with Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for speculative purposes; (x) Company and its Subsidiaries may make and own Investments received in connection with the bankruptcy or reorganization or suppliers and customers and in settlement of delinquent obligations of and other disputes with customers and suppliers arising in the ordinary course of business; (xi) Company and its Subsidiaries may make and own Investments in the form of loans (x) to officers, directors and employees of the Company and its Subsidiaries for the sole purpose of purchasing common stock of Parent (or purchases of such loans made by others) in an aggregate principal amount at any time outstanding not to exceed $5,000,000, so long as immediately before and after giving effect thereto, no Potential Event of Default or Event of Default has occurred and is continuing and (y) to Global Technology Partners in an aggregate principal amount not to exceed $1,000,000 for the sole purpose of purchasing common stock of Parent; (xii) Company and its Subsidiaries may make and own Investments solely from the proceeds of capital contributions by Parent to the Company or sales of equity Securities by the Company to Parent, in each case only to the extent proceeds from such capital contribution or sale (x) are not required to be applied to repay the Term Loans or to reduce the Acquisition Loan Commitments pursuant to subsection 2.4(B)(iii)(c), (y) arise from the issuance by Parent of its equity Securities, and (z) are received after the Closing Date for the purpose of making an Investment identified in a notice delivered to the Agents on or prior to the date such capital contribution or sale or repayment is made, so long as immediately before and after giving effect to any such Investment, no Potential Event of Default or Event of Default has occurred and is continuing; and (xiii) Company and its Subsidiaries may make and own other Investments in an aggregate amount not to exceed at any time $10,000,000. 7.4 CONTINGENT OBLIGATIONS. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: (i) Company and its Subsidiaries of Company may become and remain liable with respect to Contingent Obligations in respect of the Obligations; 109 (ii) Company may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit and Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of other letters of credit in an aggregate amount at any time not to exceed $2,000,000 for Company and its Domestic Subsidiaries and $2,000,000 for Company's Foreign Subsidiaries; (iii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations under Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for speculative purposes; (iv) Company and its Domestic Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of any Indebtedness of Company or any of its Domestic Subsidiaries permitted by subsection 7.1; PROVIDED that any such Contingent Obligations in respect of the Subordinated Indebtedness permitted pursuant to subsection 7.1(vi) are subordinated to the payment of the Obligations to the same extent as such Subordinated Indebtedness; (v) Company and its Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations described in Schedule 7.4 annexed hereto and extensions or renewals thereof, so long as such extension or renewal does not increase the amount of the Contingent Obligation being renewed or extended, as the case may be; (vi) Company and its Subsidiaries may become and remain liable with respect to other Contingent Obligations; PROVIDED that the maximum aggregate liability, contingent or otherwise, of Company and its Subsidiaries in respect of all such Contingent Obligations shall at no time exceed $2,000,000. 7.5 RESTRICTED JUNIOR PAYMENTS. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment; PROVIDED that so long as no Potential Event of Default or Event of Default shall have occurred and be continuing or would occur as a result thereof (except in the case of Restricted Junior Payments permitted by subsections 7.5(i), (iii), (v) and (vi) below): (i) Company may (a) make payments of regularly scheduled interest in respect of the Senior Subordinated Bridge Notes and the Senior Subordinated Notes, in each case in accordance with the terms of and to the extent required by (and subject to the subordination provisions contained therein) the Senior Subordinated Bridge Note Agreement or the Senior Subordinated Indenture, (b) refinance the Senior Subordinated Bridge Notes with the proceeds of the Senior Subordinated Notes and (c) to make payments to the holders of the Senior Subordinated Bridge Notes or of the Senior Subordinated Notes in the form of equity Securities that the subordination provisions applicable thereto permit such holders to accept prior to the repayment in full of the Obligations; (ii) so long as (A) after giving effect to the making of such Restricted Junior Payment, Company shall be in PRO FORMA compliance with the covenant set forth in Section 7.6B 110 for the most recent full Fiscal Quarter immediately preceding the date of the making of such Restricted Payment for which the relevant financial statements have been delivered pursuant to subsections 6.1(i) or (ii) and (B) an Authorized Officer of Company shall have delivered a certificate to Administrative Agent in form and substance reasonably satisfactory to Administrative Agent (including a calculation of Company's PRO FORMA compliance with the covenant set forth in Section 7.6B in reasonable detail) certifying as to the accuracy of clause (ii)(A) above, Company may make dividend payments to Parent the proceeds of which will be used by Parent to repurchase, redeem or otherwise acquire or retire for value any equity Securities of Parent, or any warrant, option or other right to acquire any such equity Securities, in each case held by any member of management or an employee of Parent, Company or any of its Subsidiaries pursuant to any employment agreement, management equity subscription agreement, restricted stock plan, stock option agreement or other similar arrangements so long as the total amount of such repurchases, redemptions, acquisitions, retirements and payments shall not exceed (I) $3,000,000 in any calendar year (with unused amounts in any calendar year being carried forward to succeeding calendar years subject to a maximum (without giving effect to the following clause (II)) of $8,000,000 in any calendar year) PLUS (II) the aggregate cash proceeds received by Company during such calendar year from any reissuance of equity Securities of Parent and warrants, options and other rights to acquire equity Securities of Parent, by Parent or Company to members of management and employees of Company and its Subsidiaries (to the extent such proceeds are not otherwise required to be applied pursuant to subsection 2.4B(iii) and have not been used to make Investments pursuant to subsection 7.3(xii) or Consolidated Capital Expenditures pursuant to subsection 7.8(ii)); (iii) Company may make dividend payments to Parent to the extent necessary to permit Parent to (x) pay corporate and other general administrative expenses (including fees in respect to advisors services) in an aggregate amount which does not exceed $1,000,000 in any Fiscal Year and (y) to make payments in respect of taxes imposed on Company and its Subsidiaries; (iv) on and after the fifth anniversary of the Closing Date, Company may make dividend payments to Parent to enable Parent to pay cash interest or dividends on the Parent P-I-K Securities in accordance with the terms of such Parent P-I-K Securities; PROVIDED that after giving effect to such payment, Company would be in compliance with subsection 7.6; (v) the Company shall be permitted to make payments in respect of statutory appraisal rights (and any settlement thereof) exercised by holders of outstanding DAH Common Stock in connection with the Merger; and (vi) Company may make any Restricted Junior Payment necessary in order to consummate the Tender Offer in accordance with the Tender Offer Materials, the Merger in accordance with the Merger Agreement and the Second Merger. 7.6 FINANCIAL COVENANTS. A. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not permit the Consolidated Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter, beginning 111 with the Fiscal Quarter ending December 31, 1998, occurring during any period set forth below to be less than the correlative ratio indicated:
MINIMUM FIXED PERIOD CHARGE COVERAGE RATIO ------------------------------------ --------------------- 4th Fiscal Quarter, 1998 through 4th Fiscal Quarter, 2001 1.10 x 1st Fiscal Quarter, 2002 and thereafter 1.20 x
B. MAXIMUM LEVERAGE RATIO. Company shall not permit the Consolidated Leverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending December 31, 1998, occurring during any period set forth below to exceed the correlative ratio indicated:
MAXIMUM CONSOLIDATED PERIOD LEVERAGE RATIO --------------------------- ------------------------ 4th Fiscal Quarter, 1998 6.00 x 1st Fiscal Quarter, 1999 5.90 x 2nd Fiscal Quarter, 1999 5.75 x 3rd Fiscal Quarter, 1999 5.60 x 4th Fiscal Quarter, 1999 5.50 x 1st Fiscal Quarter, 2000 5.40 x 2nd Fiscal Quarter, 2000 5.25 x 3rd Fiscal Quarter, 2000 5.10 x 4th Fiscal Quarter, 2000 through 3rd Fiscal Quarter, 2001 5.00 x 4th Fiscal Quarter, 2001 through 3rd Fiscal Quarter, 2002 4.50 x 4th Fiscal Quarter, 2002 through 3rd Fiscal Quarter, 2003 4.00 x 4th Fiscal Quarter, 2003 through 3rd Fiscal Quarter, 2004 3.50 x 4th Fiscal Quarter, 2004 and thereafter 3.00 x
C. MINIMUM CONSOLIDATED EBITDA. Company shall not permit Consolidated EBITDA for the consecutive four-Fiscal-Quarter period ending on the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending December 31, 1998, occurring during any period set forth below to be less than the correlative amount (the "MINIMUM EBITDA AMOUNT") indicated: 112
MINIMUM EBITDA QUARTER ENDED AMOUNT --------------------------- --------------------- 4th Fiscal Quarter, 1998 $ 30,000,000 1st Fiscal Quarter, 1999 31,000,000 2nd Fiscal Quarter, 1999 32,000,000 3rd Fiscal Quarter, 1999 33,000,000 4th Fiscal Quarter, 1999 34,000,000 1st Fiscal Quarter, 2000 35,000,000 2nd Fiscal Quarter, 2000 36,000,000 3rd Fiscal Quarter, 2000 37,000,000 4th Fiscal Quarter, 2000 through 3rd Fiscal Quarter 2001 38,000,000 4th Fiscal Quarter, 2001 through 3rd Fiscal Quarter 2002 42,000,000 4th Fiscal Quarter, 2002 through 3rd Fiscal Quarter 2003 46,000,000 4th Fiscal Quarter, 2003 and thereafter 50,000,000
; PROVIDED that (x) the Minimum EBITDA Amount for the consecutive four-Fiscal-Quarter period ending at the last day of any Fiscal Quarter during any period set forth above shall be increased by an amount equal to 80% of the Acquired Business EBITDA of each Acquired Business whose Acquired Business Date falls during the period from and including the Closing Date to and including the last day of such Fiscal Quarter; and (y) to the extent the amount of Consolidated EBITDA for the immediately preceding consecutive four-Fiscal-Quarter period exceeds the amount of EBITDA required to be maintained for such consecutive four-Fiscal-Quarter period pursuant to this subsection, an amount equal to 50% of such excess amount may be carried forward to (but only to) the then current Fiscal Quarter (any such amount to be certified to Administrative Agent in the Compliance Certificate delivered for the last Fiscal Quarter of such consecutive four-Fiscal-Quarter period). For purposes of this subsection 7.6C, the following terms have the following meanings: "ACQUIRED BUSINESS" means any business acquired (whether through the purchase of assets or shares of capital stock) by Company or any of its Subsidiaries after the Closing Date. "ACQUIRED BUSINESS DATE" means, with respect to any Acquired Business, the date of consummation of the acquisition thereof by Company or any of its Subsidiaries. "ACQUIRED BUSINESS EBITDA" means, with respect to any Acquired Business, 113 (x) the consolidated net income of such Acquired Business for the consecutive four-Fiscal-Quarter period ended on or most recently prior to its Acquired Business Date and with respect to which financial statements are available on the Acquired Business Date PLUS (y) to the extent deducted in determining such consolidated net income for such period, the sum of (i) consolidated interest expense, (ii) income taxes, (iii) depreciation, (iv) amortization, (v) any extraordinary or non-recurring losses, and (vi) any non-cash items MINUS (z) to the extent included in such consolidated net income, extraordinary gains. D. MINIMUM INTEREST COVERAGE RATIO. Company shall not permit the Consolidated Interest Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending December 31, 1998, occurring during any period set forth below to be less than the correlative ratio indicated:
MINIMUM INTEREST PERIOD COVERAGE RATIO ---------------------------- ------------------- 4th Fiscal Quarter, 1998 1.65 x 1st Fiscal Quarter, 1999 1.65 x 2nd Fiscal Quarter, 1999 1.70 x 3rd Fiscal Quarter, 1999 1.75 x 4th Fiscal Quarter, 1999 1.80 x 1st Fiscal Quarter, 2000 1.85 x 2nd Fiscal Quarter, 2000 1.90 x 3rd Fiscal Quarter, 2000 1.95 x 4th Fiscal Quarter, 2000 through 3rd Fiscal Quarter, 2001 2.00 x 4th Fiscal Quarter, 2001 through 3rd Fiscal Quarter, 2002 2.25 x 4th Fiscal Quarter, 2002 through 3rd Fiscal Quarter, 2003 2.50 x 4th Fiscal Quarter, 2003 through 3rd Fiscal Quarter, 2004 2.75 x 4th Fiscal Quarter, 2004 and thereafter 3.00 x
7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS. Company shall not, and shall not permit any of Company's Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, except: 114 (i) (a) any Domestic Subsidiary of Company may be merged with or into Company or any Subsidiary Guarantor, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any Subsidiary Guarantor; PROVIDED that, in the case of such a merger, Company or such Subsidiary Guarantor shall be the continuing or surviving corporation and (b) any Foreign Subsidiary may be merged with or into another Foreign Subsidiary or, so long as the surviving corporation of such merger is Company or a Domestic Subsidiary, with or into the Company or any Domestic Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of in one transaction or a series of transactions, to Company, a Subsidiary Guarantor or another Foreign Subsidiary, PROVIDED, that notwithstanding the above, a Subsidiary may only liquidate or dissolve into, or merge with and into, another Subsidiary if, after giving effect to such combination or merger, Company continues to own (directly or indirectly), and Administrative Agent continues to have pledged to it pursuant to the DAH Pledge Agreement or Subsidiary Pledge Agreement, a percentage of the issued and outstanding equity Securities (on a fully diluted basis) of the Subsidiary surviving such combinations or merger that is equal to or in excess of the percentage of the issued and outstanding shares of equity Securities (on a fully diluted basis) of the Subsidiary that does not survive such combinations or merger that was (immediately prior to the combination or merger) owned by the Company or pledged to Administrative Agent; (ii) Company and its Subsidiaries may make Consolidated Capital Expenditures permitted under subsection 7.8; (iii) Company and its Subsidiaries may dispose of obsolete, worn out or surplus property in the ordinary course of business; (iv) Company and its Subsidiaries may consummate any transfer, conveyance or other disposal that constitutes (a) an Investment permitted under subsection 7.3, (b) a Lien permitted under subsection 7.2, (c) a Restricted Junior Payment permitted under subsection 7.5 or (d) a sale and leaseback transaction permitted by subsection 7.10; (v) Company and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; (vi) Finance Co., Acquisition Co. and DAH may consummate the Merger and the Second Merger; (vii) (x) Company and its Subsidiaries may make Permitted Acquisitions; PROVIDED that such Permitted Acquisitions result in the Company or the relevant Subsidiary acquiring a majority controlling interest in the Person (or its assets and businesses) acquired, or increasing any such controlling interest maintained by it in such Person or result in the Person acquired becoming an Acquired Controlled Person with respect to Company and its Subsidiaries; and (y) no later than five Business Days prior to the consummation thereof, Company delivers to Agents a Permitted Acquisition 115 Compliance Certificate demonstrating compliance with the requirements of the definition of "Permitted Acquisition" and copies of all acquisition agreements executed and delivered in connection therewith to the extent available and requested by Administrative Agent; and PROVIDED FURTHER that reasonably promptly following the consummation of such Permitted Acquisition, Company shall have complied with the provisions of subsections 6.8 and 6.9 with respect thereto to the extent applicable; (viii) Prior to the consummation of the Merger, Company or any of its Subsidiaries may convey, sell, transfer or otherwise dispose of any Margin Stock, whether now owned or hereafter acquired; PROVIDED that such disposition is for fair value and the proceeds are held in Cash or Cash Equivalents; (ix) Company and its Subsidiaries may sell or otherwise dispose of assets as a result of any taking of assets described in clause (ii) of the definition of "Net Insurance/Condemnation Proceeds", so long as the Net Insurance/Condemnation Proceeds resulting therefrom are applied or reinvested as required by subsection 2.4B(iii)(b); (x) Company and its Subsidiaries may sell or discount overdue accounts receivable in the ordinary course of business, but only in connection with the compromise or collection thereof; (xi) Company and its Subsidiaries may make Asset Sales to Non-Wholly-Owned Subsidiaries that are not Subsidiary Guarantors of assets having a fair market value of not in excess of $10,000,000 over the term of this Agreement; provided that (x) the consideration for such assets shall be in an amount at least equal to the fair market value thereof, and (y) any Investment in such Non-Wholly-Owned Subsidiaries resulting from such Asset Sale shall be permitted by subsection 7.3(xiii) or as a Permitted Acquisition pursuant to subsection 7.3 (viii); and (xii) Company and its Subsidiaries may make Asset Sales not permitted by the foregoing clauses of assets having a fair market value of not in excess of $5,000,000 in any Fiscal Year or of $10,000,000 in the aggregate for all such Asset Sales made after the Closing Date; PROVIDED that (x) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (y) at least 75% of the consideration received therefor is in the form of cash; and (z) the proceeds of such Asset Sale are applied or reinvested as required by subsection 2.4B(iii)(a). 7.8 CONSOLIDATED CAPITAL EXPENDITURES. (i) Company will not, and will not permit any of its Subsidiaries to, make or commit to make Consolidated Capital Expenditures in any Fiscal year, except Consolidated Capital Expenditures which do not aggregate in excess of $8,000,000 in such Fiscal Year PLUS an additional aggregate amount equal to $10,000,000 over the term of this Agreement; PROVIDED that (a) if the aggregate amount of Consolidated Capital Expenditures actually made in any such Fiscal Year shall be less than the limit with respect thereto set forth above (before giving effect to any increase therein pursuant to 116 this proviso) (the "BASE AMOUNT"), then the amount of such shortfall (up to an amount equal to 50% of the Base Amount for such Fiscal Year, without giving effect to this proviso) may be added to the amount of such Consolidated Capital Expenditures permitted for the immediately succeeding Fiscal Year and any such amount carried forward to a succeeding Fiscal Year shall be deemed to be used prior to Company and its Subsidiaries using the amount of capital expenditures permitted by this section in such succeeding Fiscal Year, without giving effect to such carryforward and (b) for any Fiscal Year (or portion thereof) following any acquisition of a business (whether through the purchase of assets or of shares of capital stock) permitted under Article 7, the Base Amount for such Fiscal Year (or portion) shall be increased, for each such acquisition, by an amount equal to the product of (A) the lesser of (x) $5,000,000 and (y) 4% of revenues of the business acquired in such acquisition for the period of four Fiscal Quarters most recently ended on or prior to the date of such Business Acquisition multiplied by (B) (x) in the case of any partial Fiscal Year, a fraction, the numerator of which is the number of days remaining in such Fiscal Year after the date of such Business Acquisition and the denominator of which is 365 (or 366 in a leap year), and (y) in the case of any full Fiscal Year, 1. (ii) The parties acknowledge and agree that the permitted Consolidated Capital Expenditure level set forth in clause (i) above shall be exclusive of the amount of Consolidated Capital Expenditures actually made with the proceeds of a cash capital contribution to Company (including the proceeds of issuance of equity securities) made, by Parent from the issuance by Parent of its equity Securities after the Closing Date and specifically identified in a certificate delivered by an Authorized Officer of Company to Administrative Agent on or about the time such capital contribution is made; PROVIDED that, to the extent any such cash capital contributions constitute Net Securities Proceeds after the Merger Date, only that portion of such Net Securities Proceeds which is not required to be applied as a prepayment pursuant to Section 2.4B(iii)(c) may be used for Consolidated Capital Expenditures pursuant to this clause (ii). 7.9 FISCAL YEAR. Company shall not change its Fiscal Year-end from December 31 of each calendar year. 7.10 SALES AND LEASE-BACKS. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than Company or any of its Subsidiaries) or (ii) which Company or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Company or any of its Subsidiaries to any Person (other than Company or any of its Subsidiaries) in connection with such lease; PROVIDED that Company and its Subsidiaries may become and remain liable as lessee, guarantor or other surety with respect to any such lease if the 117 property which is subject to such lease was acquired by Company or any of its Subsidiaries within 180 days of such sale or transfer of such property by the Company or any of its Subsidiaries. 7.11 SALE OR DISCOUNT OF RECEIVABLES. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable; provided that Company and its Subsidiaries may sell or discount overdue accounts receivable in the ordinary course business, but only in connection with the compromise or collection thereof. 7.12 TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES. Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 10% or more of the voting Securities of Parent or Company or with any Affiliate of Parent or Company on terms that are less favorable to Company or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; PROVIDED that the foregoing restriction shall not apply to (i) any transaction between Company and any of its Wholly-Owned Subsidiaries or between any of its Wholly-Owned Subsidiaries; (ii) reasonable and customary fees paid to members of the Boards of Directors of Company and its Subsidiaries; (iii) any Restricted Junior Payment permitted under subsection 7.5; (iv) the entry into and performance of obligations under arrangements with DLJ and its Affiliates for underwriting, investment banking and advisory services on usual and customary terms (including payments of the fee in respect of advisory services contemplated in subsection 7.5(iii)); (v) the payment of reasonable and customary fees and reimbursement of expenses payable to directors of Parent; (vi) employment arrangements with respect to the procurement of services of directors, officers and employees in the ordinary course of business and the payment of reasonable fees in connection therewith; (vii) the issuance of equity Securities to Global Technology Partners, L.L.C. described in subsection 7.3; (viii) the execution, delivery and performance of the Merger Agreement and the consummation of the Tender Offer and the other transactions contemplated by the Tender Offer Materials; and (ix) the execution, delivery and performance of the agreements listed on Schedule 7.12. 7.13 ISSUANCE OF SUBSIDIARY EQUITY. Company shall not permit any of its Subsidiaries directly or indirectly to issue any shares of its capital stock or other equity Securities except to Company, another Subsidiary of Company, to qualify directors if required by applicable law or in proportion to its existing equity Securities of any class. Company shall not permit DAH on and after the Closing Date to issue any options, warrants or other rights to purchase or acquire any equity interest in DAH if after giving effect thereto, Company would own less than the Minimum Shares. 118 7.14 CONDUCT OF BUSINESS. From and after the Closing Date, Company shall not, and shall not permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by Company and its Subsidiaries on the Closing Date and similar or related businesses and (ii) such other lines of business as may be consented to by Requisite Lenders. 7.15 AMENDMENTS OR WAIVERS OF MERGER AGREEMENT; AMENDMENTS OF DOCUMENTS RELATING TO SUBORDINATED INDEBTEDNESS. A. Neither Company nor any of its Subsidiaries will agree to any material amendment to, or waive any of its material rights under, the Merger Agreement, or terminate or agree to terminate the Merger Agreement without in each case obtaining the prior written consent of Requisite Lenders to such amendment, waiver or termination. B. Company shall not, and shall not permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions thereof (or of any guaranty thereof), or change any collateral therefor (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder to the detriment of Lenders or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be adverse to Lenders. C. Company shall not, and shall not permit any of its Subsidiaries to, designate any Indebtedness as "Designated Senior Debt" (as defined in any of the Senior Subordinated Bridge Note Agreement or the Senior Subordinated Note Indenture) without the prior written consent of Requisite Lenders. Section 8. EVENTS OF DEFAULT If any of the following conditions or events ("Events of Default") shall occur: 8.1 FAILURE TO MAKE PAYMENTS WHEN DUE. Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; failure by Company to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit; or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement within five days after the date due; or 119 8.2 DEFAULT IN OTHER AGREEMENTS. (i) Failure of Company or any of its Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1) or Contingent Obligations in either an individual or an aggregate principal amount of $5,000,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Subsidiaries with respect to any other material term of (a) one or more items of Indebtedness or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (b) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be; or 8.3 BREACH OF CERTAIN COVENANTS. Failure of Company to perform or comply with any term or condition contained in subsection 2.5, 6.2 (solely with respect to the continued existence of Company) or 6.1(vii) or Section 7 of this Agreement; or 8.4 BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by Company or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by Company or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS. Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within 30 days after receipt by Company and such Loan Party of notice from Administrative Agent at the direction of the Requisite Lenders of such default; or 8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of Company or any of its Subsidiaries (other than any Immaterial Subsidiary) in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Company or any of its Subsidiaries (other than any Immaterial Subsidiary) under the Bankruptcy Code or under any other applicable bankruptcy, 120 insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Company or any of its Subsidiaries (other than any Immaterial Subsidiary), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Company or any of its Subsidiaries (other than any Immaterial Subsidiary) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Company or any of its Subsidiaries (other than any Immaterial Subsidiary), and any such event described in clauses (i) or (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) Company or any of its Subsidiaries (other than any Immaterial Subsidiary) shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Company or any of its Subsidiaries (other than any Immaterial Subsidiary) shall make any assignment for the benefit of creditors; or (ii) Company or any of its Subsidiaries (other than any Immaterial Subsidiary) shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of Company or any of its Subsidiaries (other than any Immaterial Subsidiary) (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 8.8 JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of attachment involving either in any individual case or in the aggregate at any time an amount in excess of $5,000,000 (in either case not adequately covered by insurance as to which a responsible insurance company is not denying its liability with respect thereto) shall be entered or filed against Company or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days; or 8.9 DISSOLUTION. Any order, judgment or decree shall be entered against Company or any of its Subsidiaries (other than any Immaterial Subsidiary) decreeing the dissolution or split up of Company or that Subsidiary (except as permitted under Sections 6.2 and 7.7 and such order shall remain undischarged or unstayed for a period in excess of 60 days; or 8.10 EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Company, any of its 121 Subsidiaries or any of their respective ERISA Affiliates in excess of $5,000,000 during the term of this Agreement; or there shall exist an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), which exceeds $5,000,000; or 8.11 CHANGE IN CONTROL. Any Change in Control shall occur; or 8.12 INVALIDITY OF GUARANTIES; FAILURE OF SECURITY; REPUDIATION OF OBLIGATIONS. At any time after the execution and delivery thereof, (i) any Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) any Collateral Document shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the Obligations or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Administrative Agent shall not have or shall cease to have a valid and perfected First Priority Lien in any Collateral purported to be covered thereby, in each case for any reason other than the failure of any Agent or any Lender to take any action within its control or except to the extent that any such event is covered by a lender's title insurance policy and the relevant insurer promptly after the occurrence thereof shall have acknowledged in writing that the same is covered by such title insurance policy, or (iii) any Loan Party shall contest the validity or enforceability of any Loan Document in writing; or 8.13 MERGERS. The Mergers shall be unwound, reversed or otherwise rescinded in whole or in part for any reason or, prior to the Merger Date, the Merger Agreement shall be terminated or the Merger shall not occur on or prior to the 150th day after the Closing Date; THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7 (with respect to Company or any Subsidiary Guarantor and, prior to the Merger, DAH), each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company, and the obligation of each Lender to make any Loan, the obligation of any Issuing Lender to issue any Letter of Credit and the right of any Issuing Lender to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, upon the written request or with the written consent of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and 122 payable, and the obligation of each Lender to make any Loan, the obligation of any Issuing Lender to issue any Letter of Credit and the right of any Issuing Lender to issue any Letter of Credit hereunder shall thereupon terminate; PROVIDED that the foregoing shall not affect in any way the obligations of Working Capital Lenders under subsection 3.3C(i) or the obligations of Working Capital Lenders to purchase participations in any unpaid Swing Line Loans as provided in subsection 2.1A(iv). Any amounts described in clause (b) above, when received by Administrative Agent, shall be held by Administrative Agent and applied as follows: If for any reason the aggregate amount delivered by Company as aforesaid is less than the amount described in clause (b) above (the "AGGREGATE AVAILABLE AMOUNT"), the aggregate amount so delivered shall be apportioned among all outstanding Letters of Credit in accordance with the ratio of the maximum amount available for drawing under each such Letter of Credit (as to such Letter of Credit, the "MAXIMUM AVAILABLE AMOUNT") to the Aggregate Available Amount. Upon any drawing under any outstanding Letters of Credit in respect of which Company has delivered to Administrative Agent any amounts described above, Administrative Agent shall apply such amounts to reimburse the Issuing Lender for the amount of such drawing. In the event of cancellation or expiration of any Letter of Credit in respect of which Company has delivered any amounts described above, or in the event of any reduction in the Maximum Available Amount under such Letter of Credit, Administrative Agent shall apply the amount then on deposit with it in respect of such Letter of Credit (LESS, in the case of such a reduction, the Maximum Available Amount under such Letter of Credit immediately after such reduction) first, to the extent of any excess, to the cash collateralization of any outstanding Letters of Credit in respect of which Company has failed to pay all or a portion of the amounts described above (such cash collateralization to be apportioned among all such Letters of Credit in the manner described above), second, to the extent of any further excess, to the payment of any other outstanding Obligations in such order as Administrative Agent shall elect, and third, to the extent of any further excess, to the payment to whomsoever shall be lawfully entitled to receive such funds. Notwithstanding anything contained in the second preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to clause (ii) of such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non-payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of Requisite Lenders and are not intended, directly or indirectly, to benefit Company, and such provisions shall not at any time be construed so as to grant Company the right to require Lenders to rescind or annul any acceleration hereunder or to preclude Administrative Agent or Lenders from exercising any of 123 the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. SECTION 9. THE AGENTS 9.1 APPOINTMENT. A. APPOINTMENT OF AGENTS. First Chicago is hereby appointed Administrative Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Administrative Agent to act as its contractual representative in accordance with the terms of this Agreement and the other Loan Documents. DLJ is hereby appointed Syndication Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Syndication Agent to act as its contractual representative in accordance with the terms of this Agreement and the other Loan Documents. Each of Syndication Agent and Administrative Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of each of Syndication Agent and Administrative Agent, and Lenders and Company shall have no rights as a third party beneficiary of any of the provisions thereof. Notwithstanding the use of the defined term "Agent," it is expressly understood and agreed that the no Agent shall have any fiduciary responsibilities to any Lender by reason of this Agreement or any other Loan Document and that the Agents are merely acting as the contractual representatives of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In their respective capacities as the Lenders' contractual representatives, the Agents (i) do not hereby assume any fiduciary duties to any of the Lenders, (ii) are "representatives" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) are acting as independent contractors, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders hereby agrees to assert no claim against the Agents on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender hereby waives. B. APPOINTMENT OF SUPPLEMENTAL COLLATERAL AGENTS. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case Administrative Agent deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Administrative Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "SUPPLEMENTAL COLLATERAL AGENT" and collectively as "SUPPLEMENTAL COLLATERAL AGENTS"). In the event that Administrative Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in 124 or conveyed to Administrative Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Administrative Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to Administrative Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to Administrative Agent shall be deemed to be references to Administrative Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by Administrative Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, Company shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by Administrative Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by Administrative Agent until the appointment of a new Supplemental Collateral Agent. 9.2 POWERS AND DUTIES; GENERAL IMMUNITY. A. POWERS. Each Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to such Agent by the terms thereof, together with such powers as are reasonably incidental thereto. No Agent shall have any implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by such Agent. B. GENERAL IMMUNITY. No Agent nor any of their respective directors, officers, agents or employees shall be liable to Company, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction has arisen from the gross negligence or willful misconduct of such Person. C. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. No Agent nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (a) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (b) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (c) the satisfaction of any condition specified in Section 4, except receipt of items required to be delivered solely to Administrative Agent or Syndication Agent, as the case may be; (d) the existence or possible existence of any Event of Default or Potential of Default; (e) the validity, enforceability, effectiveness, sufficiency or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; (f) the value, sufficiency, creation, perfection or 125 priority of any Lien in any collateral security; or (g) the financial condition of Company or any guarantor of any of the Obligations or of any of Company's or any such guarantor's respective Subsidiaries. No Agent shall have any duty to disclose to the Lenders information that is not required to be furnished by Company to such Agent at such time, but is voluntarily furnished by Company to such Agent (either in its capacity as Administrative Agent or Syndication Agent, as the case may be, or in its individual capacity). Anything contained in this Agreement to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof. D. ACTION ON INSTRUCTIONS OF LENDER. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Requisite Lenders (or if required by the terms of subsection 10.6, all of the Lenders), and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. The Lenders hereby acknowledge that each Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement or any other Loan Document unless it shall be requested in writing to do so by the Requisite Lenders. Each Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders in proportion to their Pro Rata Share against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. E. EMPLOYMENT OF AGENTS AND COUNSEL. Each Agent may execute any of its duties as Administrative Agent or Syndication Agent, as the case may be, hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Each Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Agents and the Lenders and all matters pertaining to each Agent's duties hereunder and under any other Loan Document. F. RELIANCE ON DOCUMENTS; COUNSEL. Each Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by any Agent, which counsel may be employees of any Agent. G. AGENTS' REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to reimburse and indemnify each Agent ratably in proportion to their respective Commitments (or, if the Commitments have been terminated, in proportion to their Commitments immediately prior to such termination) (i) for any amounts not reimbursed by Company for which any Agent is entitled to reimbursement by Company under the Loan Documents, (ii) for any other expenses incurred by any Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents (including, without limitation, for any expenses incurred by any Agent in connection with any dispute between the Agents, the Agents and any Lender or between two or more of the Lenders) and (iii) for any liabilities, 126 obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against any Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby (including, without limitation, for any such amounts incurred by or asserted against any Agent in connection with any dispute between the Agents, the Agents and any Lender or between two or more of the Lenders), or the enforcement of any of the terms of the Loan Documents or of any such other documents; PROVIDED that (i) no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of any Agent and (ii) any indemnification required pursuant to subsection 2.7 shall, notwithstanding the provisions of this subsection, be paid by the relevant Lender in accordance with the provisions thereof. The obligations of the Lenders under this subsection shall survive payment of the Obligations and termination of this Agreement. H. NOTICE OF DEFAULT. No Agent shall be deemed to have knowledge or notice of the occurrence of any Event of Default or Potential Event of Default hereunder unless such Agent has received written notice from a Lender or Company referring to this Agreement describing such Event of Default or Potential Event of Default and stating that such notice is a "notice of default". In the event that any Agent receives such a notice, such Agent shall give prompt notice thereof to the Lenders. I. RIGHTS AS A LENDER. In the event any Agent is a Lender, such Agent shall have the same rights and powers hereunder and under any other Loan Document with respect to its Commitment and its Loans as any Lender and may exercise the same as though it were not such Agent, and the term "Lender" or "Lenders" shall, at any time when any Agent is a Lender, unless the context otherwise indicates, include such Agent in its individual capacity. Each Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with Company or any of its Subsidiaries in which Company or such Subsidiary is not restricted hereby from engaging with any other Person. J. LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon any Agent, the Arranger or any other Lender and based on financial statements prepared by Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon any Agent, the Arranger or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. K. DELEGATION TO AFFILIATES. Company and the Lenders agree that any Agent may delegate any of its duties under this Agreement to any of its Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents and employees) which performs duties in connection with this Agreement shall be entitled to the same benefits of the indemnification, waiver and other protective provisions to which such Agent is entitled under Sections 9 and 10. 127 9.3 SUCCESSOR AGENTS AND SWING LINE LENDER. A. SUCCESSOR AGENTS. The Syndication Agent may resign at any time upon one Business Day's prior notice thereof to Company and Administrative Agent, and the Administrative Agent may resign at any time by giving written notice thereof to the Syndication Agent, the Lenders and Company, such resignations to be effective upon the appointment of a successor Administrative Agent or Syndication Agent, as the case may be, or, if no successor Administrative Agent or Syndication Agent has been appointed, forty-five days after the retiring Administrative Agent or Syndication Agent gives notice of its intention to resign. Administrative Agent may be removed at any time with or without cause by written notice received by Administrative Agent from the Requisite Lenders, such removal to be effective on the date specified by the Requisite Lenders. Upon any such resignation or removal, the Requisite Lenders shall have the right to appoint, on behalf of Company and the Lenders, and, if no Event of Default has occurred and is continuing, subject to the consent of Company, a successor Administrative Agent or Syndication Agent, as the case may be. If no successor Administrative Agent or Syndication Agent shall have been so appointed by the Requisite Lenders within thirty days after the resigning Administrative Agent's or Syndication Agent's giving notice of its intention to resign, then the resigning Administrative Agent or Syndication Agent, as the case may be, may appoint, on behalf of Company and the Lenders, a successor Administrative Agent or Syndication Agent, as the case may be. Notwithstanding the previous sentence, Administrative Agent or Syndication Agent may at any time without the consent of Company or any Lender, appoint any of its Affiliates which is a commercial bank as the successor Administrative Agent or Syndication Agent hereunder. If Administrative Agent or Syndication Agent has resigned or been removed and no successor Administrative Agent or Syndication Agent has been appointed, the Lenders may perform all the duties of Administrative Agent or Syndication Agent hereunder and Company shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Administrative Agent or Syndication Agent shall be deemed to be appointed hereunder until such successor Administrative Agent or Syndication Agent has accepted the appointment. Any such successor Administrative Agent or Syndication Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent or Syndication Agent hereunder by a successor Administrative Agent or Syndication Agent, such successor Administrative Agent or Syndication Agent shall thereupon succeed to and become vested with all the rights, power, privileges and duties of the resigning or removed Administrative Agent or Syndication Agent. Upon the effectiveness of the resignation or removal of the Administrative Agent or Syndication Agent, the resigning or removed Administrative Agent or Syndication Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation or removal of the Administrative Agent or the Syndication Agent, as the case may be, the provisons of this Section 9 shall continue in effect for the benefit of such Administrative Agent or Syndication Agent in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent or Syndication Agent hereunder and under the other Loan Documents. In the event that there is a successor to the Administrative Agent by merger, or the Administrative Agent assigns its duties and obligations to an Affiliate pursuant to this 128 subsection, then the term "Corporate Base Rate" as used in this Agreement shall mean the prime rate, base rate or other analogous rate of the new Administration Agent. B. SUCCESSOR SWING LINE LENDER. Any resignation or removal of Administrative Agent pursuant to subsection 9.3A shall also constitute the resignation or removal of First Chicago or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to subsection 9.3A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (i) the resigning or removed Swing Line Lender shall assign all of its rights and obligations with respect to the Swing Line Loans to the successor Swing Line Lender pursuant to an Assignment Agreement and such successor Swing Line Lender shall be entitled thereafter to all of the rights and immunities of the resigning or removed Swing Line Lender pursuant to subsection 2.1, (ii) the retiring or removed Administrative Agent and Swing Line Lender shall surrender the Swing Line Note held by it to Company for cancellation, and (iii) Company shall issue a new Swing Line Note to the successor Administrative Agent and Swing Line Lender substantially in the form of EXHIBIT VII annexed hereto, in the principal amount of the Swing Line Loan Commitment then in effect and with other appropriate insertions. 9.4 COLLATERAL DOCUMENTS AND GUARANTIES. A. EXECUTION OF COLLATERAL DOCUMENTS. The Lenders hereby empower and authorize Administrative Agent to execute and deliver to Company on their behalf the Collateral and all related financing statements and any financing statements, agreements, documents or instruments as shall be necessary or appropriate to effect the purposes of the Collateral Documents and to be the agent for and representative of Lenders under each Guaranty, and each Lender agrees to be bound by the terms of each Collateral Document and Guaranty. Anything contained in any of the Loan Documents to the contrary notwithstanding, Company, each Agent and each Lender hereby agree that (X) no Lender shall have any right individually to realize upon any of the Collateral under any Collateral Document or to enforce any Guaranty, it being understood and agreed that all rights and remedies under the Collateral Documents and the Guaranties may be exercised solely by Administrative Agent for the benefit of Lenders in accordance with the terms thereof, and (Y) in the event of a foreclosure by Administrative Agent on any of the Collateral pursuant to a public or private sale, any Agent or any Lender may, to the fullest extent that the same may be permitted under applicable law, be the purchaser of any or all of such Collateral at any such sale and Administrative Agent, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Administrative Agent at such sale. B. COLLATERAL RELEASES. The Lenders hereby empower and authorize Administrative Agent to execute and deliver to Company on their behalf any agreements, documents or instruments as shall be necessary or appropriate to effect any releases of Collateral which shall be permitted by the terms hereof or of any other Loan Document or which shall otherwise have been 129 approved by the Requisite Lenders (or, if required by the terms of subsection 10.6, all of the Lenders) in writing. Section 10. MISCELLANEOUS 10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT. A. GENERAL. Subject to subsection 10.1B, each Lender shall have the right at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments or any Loan or Loans made by it or participations in Letters of Credit hereunder or any other interest herein or in any other Obligations owed to it; PROVIDED that no such sale, assignment, transfer or participation shall, without the consent of Company, require Company to file a registration statement with the Securities and Exchange Commission or apply to qualify such sale, assignment, transfer or participation under the securities laws of any state; PROVIDED, FURTHER that no such sale, assignment, transfer or participation of any participation in Letters of Credit hereunder may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Working Capital Loan Commitment and the Working Capital Loans of the Working Capital Lender effecting such sale, assignment, transfer or participation; and PROVIDED, FURTHER that, anything contained herein to the contrary notwithstanding, the Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may not be sold, assigned or transferred as described in clause (i) above to any Person other than a successor Administrative Agent and Swing Line Lender to the extent contemplated by subsection 9.3. Except as otherwise provided in this subsection 10.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment or transfer of, or any granting of participations in, all or any part of its Commitments or the Loans, the Letters of Credit or participations therein, or the other Obligations owed to such Lender. B. ASSIGNMENTS. (i) AMOUNTS AND TERMS OF ASSIGNMENTS. Each Commitment, Loan or participation in Letters of Credit hereunder, or other Obligation may (a) be assigned in any amount to another Lender, or to an Affiliate or Affiliated Fund of the assigning Lender or another Lender, with the giving of notice to Company and Administrative Agent, or (b) be assigned in an aggregate amount of not less than $3,000,000 (or such lesser amount as shall constitute the aggregate amount of the Commitments, Loans, and participations in Letters of Credit, and other Obligations of the assigning Lender or as may be consented to by Company and Agents) to any other Eligible Assignee with the consent of Company (which consent shall only be required if no Event of Default has occurred and is continuing) and, with respect to all Lenders other than Syndication Agent, Administrative Agent (which consent of Company and Administrative Agent shall not be unreasonably withheld or delayed). To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans or participations in Letters of Credit, or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to Administrative Agent, for its acceptance, an Assignment Agreement (which shall contain a representation by the Assignee to the 130 effect that none of the consideration used to make the purchase of the Commitment, Loan or participation in Letters of Credit under the applicable Assignment Agreement are "plan assets" as defined under ERISA and that the rights and interests of the Assignee in and under the Loan Documents will not be "plan assets" under ERISA), together with a processing fee of $3,500 (or such other amount as may be agreed to by Administrative Agent) and such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a). Upon such execution, delivery and acceptance from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination of this Agreement under subsection 10.9B) and be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto; PROVIDED that, anything contained in any of the Loan Documents to the contrary notwithstanding, if such Lender is the Issuing Lender with respect to any outstanding Letters of Credit such Lender shall continue to have all rights and obligations of an Issuing Lender with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder). The Commitments hereunder shall be modified to reflect the Commitment of such assignee and any remaining Commitment of such assigning Lender and, if any such assignment occurs after the issuance to the assigning Lender of Notes hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Administrative Agent for cancellation, and thereupon new Notes shall be issued to the assignee and to the assigning Lender, substantially in the form of EXHIBIT IV, EXHIBIT V, EXHIBIT VI, EXHIBIT VII or EXHIBIT VIII annexed hereto, as the case may be, with appropriate insertions, to reflect the new Commitments and/or outstanding Term Loans, as the case may be, of the assignee and the assigning Lender. (ii) ACCEPTANCE BY ADMINISTRATIVE AGENT. Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing fee referred to in subsection 10.1B(i) and any forms, certificates or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a), Administrative Agent shall, if Administrative Agent and Company have consented to the assignment evidenced thereby (in each case to the extent such consent is required pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of Administrative Agent to such assignment) and (b) give prompt notice thereof to Company. Administrative Agent shall 131 maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 10.1B(ii). C. PARTICIPATIONS. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require the Lender that shall have granted such participation to it to take or omit to take any action hereunder except action directly affecting (i) the extension of the scheduled final maturity date of any Loan allocated to such participation or (ii) a reduction of the principal amount of or the rate of interest payable on any Loan allocated to such participation, and all amounts payable by Company hereunder (including amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not sold such participation. Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 10.4 and 10.5, to the fullest extent permitted under applicable law, (a) any participation will give rise to a direct obligation of Company to the participant and (b) the participant shall be considered to be a "Lender". D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; PROVIDED that (i) no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. E. INFORMATION. Each Lender may furnish any information concerning Company and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.19. F. REPRESENTATIONS OF LENDERS. Each Lender listed on the signature pages hereof hereby represents and warrants (i) that it is an Eligible Assignee described in clause (A) of the definition thereof; (ii) that it has experience and expertise in the making of loans such as the Loans; and (iii) that it will make its Loans for its own account in the ordinary course of its business and without a view to distribution of such Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this subsection 10.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). Each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree that the representations and warranties of such Lender contained in Section 2(c) of such Assignment Agreement are incorporated herein by this reference. 10.2 EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (i) all the actual and reasonable costs and expenses of the Agents with respect to the preparation of the Loan Documents and any consents, amendments, waivers or other modifications thereto; (ii) the reasonable fees, expenses and disbursements of a 132 single counsel to Agents and Arranger (including the costs of local or foreign counsel, to the extent required) in connection with the negotiation, preparation, execution and administration of the Loan Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (iii) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Administrative Agent on behalf of Lenders pursuant to any Collateral Document, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums, and reasonable fees, expenses and disbursements of counsel to Agents and of counsel providing any opinions that Syndication Agent, Administrative Agent or Requisite Lenders may request in respect of the Collateral Documents or the Liens created pursuant thereto; (iv) the custody or preservation of any of the Collateral; (v) all other actual and reasonable costs and expenses incurred by Arranger, Syndication Agent or Administrative Agent (including the reasonable fees, expenses and disbursements of any auditors, accountants or appraisers and any environmental or other consultants, advisors and agents employed or retained by Syndication Agent, Administrative Agent or their respective counsel) in connection with the syndication of the Commitments and the negotiation, preparation and execution of the Loan Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (vi) after the occurrence of an Event of Default, all costs and expenses, including reasonable attorneys' fees and costs of settlement, incurred by Agents and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranties or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings). 10.3 INDEMNITY. In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby shall be consummated, Company agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless Arranger, Agents and Lenders, and the officers, directors, trustees, employees, agents and affiliates of Arranger, Agents and Lenders (collectively called the "INDEMNITEES"), from and against any and all Indemnified Liabilities (as hereinafter defined); PROVIDED that Company shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction or to the extent that such Indemnified Liabilities are Environmental Liabilities that arise solely out of the actions of Administrative Agent or Lenders occurring after Administrative Agent or Lenders shall have foreclosed on, or otherwise dispossessed Company and its Subsidiaries of, the applicable Facility. As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials 133 Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof or the issuance of Letters of Credit hereunder or the use or intended use of any thereof, or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranties) or (ii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Company or any of its Subsidiaries. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. 10.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default referred to in Sections 8.6 or 8.7 or, with the consent of the Requisite Lenders, upon the occurrence of any other Event of Default, each Lender is, to the fullest extent permitted by applicable law, hereby authorized by Company at any time or from time to time, without notice to Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of Company against and on account of the obligations and liabilities then due of Company to that Lender under this Agreement, the Letters of Credit and participations therein and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not that Lender shall have made any demand hereunder. Company hereby further grants to each Agent and each Lender a security interest in all deposits and accounts maintained with such Agent or such Lender as security for the Obligations. 10.5 RATABLE SHARING. Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance 134 with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; PROVIDED that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees, to the fullest extent that it may do so under applicable law, that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 10.6 AMENDMENTS AND WAIVERS. No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes, and no consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; PROVIDED that no such amendment, modification, termination, waiver or consent which would: (a) modify any requirement hereunder that any particular action be taken by all the Lenders or by Requisite Lenders shall be effective unless consented to by each Lender; (b) modify this subsection 10.6, change the definitions of "Requisite Lenders" or "Pro Rata Share", increase any Commitments (other than pursuant to the second paragraph of subsection 2.4A(iii)), reduce any fees described in subsection 2.3 (other than the fees to Agents referred to in subsection 2.3B), release any material Subsidiary Guarantor from its obligations under the Guaranty, Parent from its obligations under the Parent Guaranty, or all or substantially all of the collateral security (except in each case as otherwise specifically provided for in the Loan Documents), or extend the Working Capital Loan Commitment Termination Date or the Acquisition Loan Commitment Termination Date, shall be made without the consent of each Lender adversely affected thereby; 135 (c) extend the due date for, or reduce the amount of, any scheduled repayment of principal of or interest on or fees payable in respect of any Loan or reduce the principal amount of or rate of interest on or fees payable in respect of any Loan or any reimbursement obligation in respect of any Letter of Credit (which shall in each case include the conversion of all or any part of the Obligations into equity of any Loan Party), shall be made without the consent of the Lender which has made such Loan or, in the case of a reimbursement obligation in respect of any Letter of Credit, the Issuer owed, and those Lenders participating in, such reimbursement obligation; (d) affect adversely the interests, rights or obligations of any Agent, any Issuer or the Swing Line Lender (in its capacity as Agent, Issuer or Swing Line Lender), unless consented to by such Agent, Issuer or Swing Line Lender, as the case may be; or (e) effect any amendment, modification or waiver that by its terms adversely affects the rights of Lenders participating in any tranche differently from those of Lenders participating in other tranches, without the consent of the holders of at least 51% of the aggregate amount of Loans or Commitments, as the case may be, outstanding under the tranche or tranches affected by such amendment, modification or waiver. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. 10.7 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 10.8 NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; PROVIDED that notices to Agents shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or (i) as to Company and Agents, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to 136 each other party, such other address as shall be designated by such party in a written notice delivered to Administrative Agent. 10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections 9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination of this Agreement. 10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.11 MARSHALLING; PAYMENTS SET ASIDE. None of Agents or Lenders shall be under any obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all of the Obligations. To the extent that Company makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent for the benefit of Lenders), or any of Agents or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.12 SEVERABILITY. In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 137 10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.14 HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.15 APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 10.16 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders (it being understood that Lenders' rights of assignment are subject to subsection 10.1). Neither Company's rights or obligations hereunder nor any interest therein may be assigned or delegated by Company without the prior written consent of all Lenders. 10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY 138 (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND TO THE EXTENT PERMITTED UNDER APPLICABLE LAW VENUE OF SUCH COURTS; (II) TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 10.18 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR 139 IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.19 CONFIDENTIALITY. Each Lender, Issuing Lender, Agent and Arranger shall hold all non-public information obtained in connection with this Agreement or obtained by it based on a review of the books and records of the Company or any of its Subsidiaries in accordance with such Lender's, Issuing Lender's, Agent's or Arranger's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by Company that in any event a Lender may make disclosures to Affiliates and professional advisors of such Lender or disclosures reasonably required by (a) any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein or (b) by any direct or indirect contractual counterparties in swap agreements or such contractual counterparties' professional advisors provided that such contractual counterparty or professional advisor to such contractual counterparty agrees in writing to keep such information confidential to the same extent required of the Lenders hereunder, or disclosures required or requested by any governmental agency or representative thereof or pursuant to legal process; PROVIDED that, (x) unless specifically prohibited by applicable law or court order, each Lender, Issuing Lender, Agent and Arranger shall promptly notify Company of any request by any governmental agency or representative thereof (other than any request by the National Association of Insurance Commissioners or any request in connection with any examination of the financial condition of such Lender by any governmental agency) for disclosure of any such non-public information prior to disclosure of such information and (y) prior to any such disclosure pursuant to this Section 10.19 each Lender, each Issuing Lender, each Agent and the Arranger, as the case may be, shall require any such BONA FIDE transferee, participant and assignee to agree to be bound by this Section 10.19 and to require such Person to require any other Person to whom such Person discloses any such non-public information to be similarly bound by this Section 10.19; and PROVIDED, FURTHER that in no event shall any Lender be obligated or required to return any materials furnished by Company or any of its Subsidiaries except as may be required by an order of a court of competent jurisdiction and to the extent set forth therein. 10.20 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agreement shall become effective upon the execution of a counterpart hereof by each of the 140 parties hereto and receipt by Company and Agents of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 141 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: DECRANE FINANCE CO. By: -------------------------------- President and Chief Executive Officer Notice Address: -------------------------------- -------------------------------- Attention: ----------------- LENDERS: THE FIRST NATIONAL BANK OF CHICAGO, individually and as Administrative Agent By: -------------------------------- Title: -------------------------------- Notice Address: One First National Plaza Chicago, Illinois 60670 Attention: ----------------- DLJ CAPITAL FUNDING, INC., individually and as Syndication Agent By: -------------------------------- Title: -------------------------------- Notice Address: 2121 Avenue of the Stars Los Angeles, CA 90067-5014 Attention: ------------------ 142 [Lenders Signature Blocks and Notice Addresses] 143 U.S. $130,000,000 CREDIT AGREEMENT DATED AS OF AUGUST 28, 1998 AMONG DECRANE FINANCE CO., AS BORROWER, THE LENDERS LISTED HEREIN, AS LENDERS, DLJ CAPITAL FUNDING, INC., AS SYNDICATION AGENT, AND THE FIRST NATIONAL BANK OF CHICAGO, AS ADMINISTRATIVE AGENT, ARRANGED BY: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION DECRANE FINANCE CO. CREDIT AGREEMENT TABLE OF CONTENTS Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement . . . . . . . . . . . . . . . . 32 1.3 Other Definitional Provisions and Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . . . . . . . . . . . . 34 2.1 Commitments; Making of Loans; Notes. . . . . . . . . . . . . . . . . 34 2.2 Interest on the Loans. . . . . . . . . . . . . . . . . . . . . . . . 43 2.3 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 2.4 Repayments, Prepayments and Reductions in Loan Commitments; General Provisions Regarding Payments . . . . . . . . . . . . . . . . . 52 2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.6 Special Provisions Governing Eurodollar Rate Loans.. . . . . . . . . 63 2.7 Increased Costs; Taxes; Capital Adequacy.. . . . . . . . . . . . . . 65 2.8 Obligation of Lenders and Issuing Lenders to Mitigate; Replacement of Lender . . . . . . . . . . . . . . . . 70 Section 3. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . 71 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein . . . . . . . . . . . . . . . . . . . 71 3.2 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . . . 73 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 74 3.4 Obligations Absolute.. . . . . . . . . . . . . . . . . . . . . . . . 76 3.5 Indemnification; Nature of Issuing Lenders' Duties.. . . . . . . . . 77 3.6 Increased Costs and Taxes Relating to Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT. . . . . . . . . . . . . . 79 4.1 Conditions to Initial Loans. . . . . . . . . . . . . . . . . . . . . 79 4.2 Conditions to Loans Made on Merger Date. . . . . . . . . . . . . . . 84 4.3 Conditions to Acquisition Loans. . . . . . . . . . . . . . . . . . . 87 i 4.4 Conditions to Loans Made on Each Funding Date. . . . . . . . . . . . 87 4.5 Conditions to Letters of Credit. . . . . . . . . . . . . . . . . . . 88 Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 88 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries . . . . . . . . . . . . . . . . . . . 88 5.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . . . 89 5.3 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . 90 5.4 No Material Adverse Change; No Restricted Junior Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 5.5 Title to Properties; Liens; Real Property. . . . . . . . . . . . . . 90 5.6 Litigation; Adverse Facts. . . . . . . . . . . . . . . . . . . . . . 91 5.7 Payment of Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . 91 5.8 Governmental Regulation. . . . . . . . . . . . . . . . . . . . . . . 91 5.9 Securities Activities. . . . . . . . . . . . . . . . . . . . . . . . 92 5.10 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . 92 5.11 Environmental Protection.. . . . . . . . . . . . . . . . . . . . . . 92 5.12 Employee Matters.. . . . . . . . . . . . . . . . . . . . . . . . . . 93 5.13 Solvency.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 5.14 Matters Relating to Collateral.. . . . . . . . . . . . . . . . . . . 93 5.15 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 5.16 Year 2000 Compliance.. . . . . . . . . . . . . . . . . . . . . . . . 95 Section 6. COMPANY'S AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 95 6.1 Financial Statements and Other Reports.. . . . . . . . . . . . . . . 95 6.2 Legal Existence, etc.. . . . . . . . . . . . . . . . . . . . . . . . 98 6.3 Payment of Taxes and Claims; Tax Consolidation.. . . . . . . . . . . 98 6.4 Maintenance of Properties; Insurance; Application of Net Insurance/Condemnation Proceeds. . . . . . . . . . . . . . 99 6.5 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . .100 6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . .100 6.7 Execution of Subsidiary Guaranty and Personal Property Collateral Documents by Certain Subsidiaries and Future Subsidiaries; IP Collateral. . . . . . . . . . . . . . . . . . . . . . . . .101 6.8 Future Leased Property and Future Acquisitions of Real Property: Future Acquisition of Other Property.. . . . . . . . . . . . . . . . . . . . . . . .102 ii 6.9 Merger.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103 6.10 Second Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . .103 6.11 Year 2000 Compliance.. . . . . . . . . . . . . . . . . . . . . . . .103 6.12 PTO and CO Cover Sheets, Etc.. . . . . . . . . . . . . . . . . . . .104 6.13 Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104 Section 7. COMPANY'S NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . .104 7.1 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . . . . .105 7.2 Liens and Related Matters. . . . . . . . . . . . . . . . . . . . . .106 7.3 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .108 7.4 Contingent Obligations.. . . . . . . . . . . . . . . . . . . . . . .109 7.5 Restricted Junior Payments.. . . . . . . . . . . . . . . . . . . . .110 7.6 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . .111 7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions.. . . . . . . . . . . . . . . . . . . . . . . . .114 7.8 Consolidated Capital Expenditures. . . . . . . . . . . . . . . . . .116 7.9 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . .117 7.10 Sales and Lease-Backs. . . . . . . . . . . . . . . . . . . . . . . .117 7.11 Sale or Discount of Receivables. . . . . . . . . . . . . . . . . . .118 7.12 Transactions with Stockholders and Affiliates. . . . . . . . . . . .118 7.13 Issuance of Subsidiary Equity. . . . . . . . . . . . . . . . . . . .118 7.14 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . .119 7.15 Amendments or Waivers of Merger Agreement; Amendments of Documents Relating to Subordinated Indebtedness. . . . . . . . . . . . .119 Section 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . .119 8.1 Failure to Make Payments When Due. . . . . . . . . . . . . . . . . .119 8.2 Default in Other Agreements. . . . . . . . . . . . . . . . . . . . .120 8.3 Breach of Certain Covenants. . . . . . . . . . . . . . . . . . . . .120 8.4 Breach of Warranty.. . . . . . . . . . . . . . . . . . . . . . . . .120 8.5 Other Defaults Under Loan Documents. . . . . . . . . . . . . . . . .120 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.. . . . . . . . .121 8.8 Judgments and Attachments. . . . . . . . . . . . . . . . . . . . . .121 8.9 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . .121 iii 8.10 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . .121 8.11 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . . .122 8.12 Invalidity of Guaranties; Failure of Security; Repudiation of Obligations.. . . . . . . . . . . . . . . . . .122 8.13 Mergers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122 Section 9. THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .124 9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .124 9.2 Powers and Duties; General Immunity. . . . . . . . . . . . . . . . .125 9.3 Successor Agents and Swing Line Lender.. . . . . . . . . . . . . . .128 9.4 Collateral Documents and Guaranties. . . . . . . . . . . . . . . . .129 Section 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . .130 10.1 Assignments and Participations in Loans and Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . .130 10.2 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 10.3 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133 10.4 Set-Off; Security Interest in Deposit Accounts.. . . . . . . . . . .134 10.5 Ratable Sharing. . . . . . . . . . . . . . . . . . . . . . . . . . .134 10.6 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . . .135 10.7 Independence of Covenants. . . . . . . . . . . . . . . . . . . . . .136 10.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .136 10.9 Survival of Representations, Warranties and Agreements . . . . . . .137 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. . . . . . . .137 10.11 Marshalling; Payments Set Aside. . . . . . . . . . . . . . . . . . .137 10.12 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . .137 10.13 Obligations Several; Independent Nature of Lenders' Rights . . . . .138 10.14 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .138 10.15 Applicable Law.. . . . . . . . . . . . . . . . . . . . . . . . . . .138 10.16 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . .138 10.17 Consent to Jurisdiction and Service of Process.. . . . . . . . . . .138 10.18 Waiver of Jury Trial.. . . . . . . . . . . . . . . . . . . . . . . .139 10.19 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . .140 10.20 Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . . .140 Signature pages S-1
iv EXHIBITS I. FORM OF NOTICE OF BORROWING II. FORM OF NOTICE OF CONVERSION/CONTINUATION III. FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT IV. FORM OF TRANCHE A TERM NOTE V. FORM OF TRANCHE B TERM NOTE VI. FORM OF WORKING CAPITAL NOTE VII. FORM OF SWING LINE NOTE VIII. FORM OF ACQUISITION NOTE IX. FORM OF COMPLIANCE CERTIFICATE X-1. FORM OF CLOSING DATE OPINION OF DAVIS POLK & WARDWELL X-2 FORM OF CLOSING DATE OPINION OF SPOLIN & SILVERMAN XI. FORM OF OPINION OF O'MELVENY & MYERS LLP XII. FORM OF ASSIGNMENT AGREEMENT XIII. FORM OF CERTIFICATE RE NON-BANK STATUS XIV. FORM OF FINANCE CO. PLEDGE AGREEMENT XV. FORM OF DAH PLEDGE AGREEMENT XVI. FORM OF SECURITY AGREEMENT XVII FORM OF ACQUISITION CO. GUARANTY XVIII. FORM OF SUBSIDIARY GUARANTY XIX. FORM OF SUBSIDIARY PLEDGE AGREEMENT XX. FORM OF PARENT PLEDGE AGREEMENT XXI. FORM OF PARENT GUARANTY v XXII. FORM OF SOLVENCY CERTIFICATE XXIII. FORM OF COLLATERAL ACCOUNT AGREEMENT XXIV-1. FORM OF MERGER DATE OPINION OF DAVIS POLK & WARDWELL XXIV-2. FORM OF MERGER DATE OPINION OF SPOLIN & SILVERMAN XXV. FORM OF MERGER DATE OPINION OF COMPANY LOCAL COUNSEL XXVI. FORM OF PERMITTED ACQUISITION COMPLIANCE CERTIFICATE XXVII. FORM OF INVESTMENT ACCOUNT AGREEMENT XXVIII. FORM OF INTERCOMPANY NOTE RELATING TO TRANCHE A TERM LOANS AND WORKING CAPITAL LOANS XXIX. FORM OF INTERCOMPANY NOTE RELATING TO TRANCHE B TERM LOANS XXX. FORM OF INTERCOMPANY DEBT SUBORDINATION AGREEMENT
vi SCHEDULES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 5.1 SUBSIDIARIES OF COMPANY 5.5 REAL PROPERTY 5.6 LITIGATION 5.11 ENVIRONMENTAL MATTERS 6.8 MERGER DATE MORTGAGED PROPERTIES 7.1 CERTAIN EXISTING INDEBTEDNESS 7.2 CERTAIN EXISTING LIENS 7.3 CERTAIN EXISTING INVESTMENTS 7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.12 CERTAIN AGREEMENTS WITH AFFILIATES
vii EX-10.10-1 44 EXHIBIT 10.10.1 DECRANE AIRCRAFT HOLDINGS, INC. FIRST AMENDMENT TO CREDIT AGREEMENT This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is dated as of January 22, 1999 and entered into by and among DeCrane Aircraft Holdings, Inc., a Delaware corporation ("COMPANY"), the financial institutions listed on the signature pages hereof ("LENDERS"), DLJ Capital Funding, Inc., as syndication agent for Lenders ("SYNDICATION AGENT") and The First National Bank of Chicago, as administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and is made with reference to that certain Credit Agreement dated as of August 28, 1998 (the "CREDIT AGREEMENT"), by and among Company, the lenders listed on the signature pages thereof, Syndication Agent and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company and Lenders desire to amend the Credit Agreement to (i) increase the aggregate amount of the Tranche B Term Loans from $45,000,000 to $65,000,000, (ii) increase the interest rate margins applicable to the Loans and (iii) make certain other amendments as set forth below: NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: Section 1. AMENDMENTS TO THE CREDIT AGREEMENT .1 AMENDMENTS TO SECTION 1: DEFINITIONS A. Subsection 1.1 of the Credit Agreement is hereby amended by adding thereto the following definitions, which shall be inserted in proper alphabetical order: "'ADDITIONAL TRANCHE B TERM LOAN COMMITMENT' means the commitment of a Lender to make an Additional Tranche B Term Loan to Company on the First Amendment Closing Date pursuant to subsection 2.1A(ii), and 'ADDITIONAL TRANCHE B TERM LOAN COMMITMENTS' means such commitments of all Lenders in the aggregate." "'ADDITIONAL TRANCHE B TERM LOAN EXPOSURE' means, with respect to any Tranche B Term Loan Lender as of any date of determination (i) prior to the funding of the Additional Tranche B Term Loans, that Lender's Additional Tranche B Term Loan Commitment and (ii) after the funding of the Additional Tranche B Term Loans, the outstanding principal amount of the Additional Tranche B Term Loan of that Lender." "'ADDITIONAL TRANCHE B TERM LOANS' means only those Tranche B Term Loans made by Tranche B Term Loan Lenders to Company on the First Amendment Closing Date pursuant to subsection 2.1A(ii)." "'ADDITIONAL TRANCHE B TERM NOTES' means the promissory notes of Company issued pursuant to subsection 2.1D on the First Amendment Closing Date, substantially in the form of EXHIBIT V annexed hereto, as they may be amended, supplemented or otherwise modified from time to time." "'FIRST AMENDMENT CLOSING DATE' means the date on or before February 12, 1999 on which the Additional Tranche B Term Loans are made." "'ORIGINAL TRANCHE B TERM LOAN COMMITMENT' means the commitment of a Lender to make a Tranche B Term Loan to Company on the Closing Date pursuant to subsection 2.1A(ii), and 'ORIGINAL TRANCHE B TERM LOAN COMMITMENTS' means such commitments of all Lenders in the aggregate." "'ORIGINAL TRANCHE B TERM LOAN EXPOSURE' means, with respect to any Tranche B Term Loan Lender as of any date of determination (i) prior to the funding of the Original Tranche B Term Loans, that Lender's Original Tranche B Term Loan Commitment and (ii) after the funding of the Original Tranche B Term Loans, the outstanding principal amount of the Original Tranche B Term Loan of that Lender." "'ORIGINAL TRANCHE B TERM LOANS' means only those Tranche B Term Loans made by Tranche B Term Loan Lenders to Company on the Closing Date pursuant to subsection 2.1A(ii)." "'PATS ACQUISITION' means the acquisition by Company of 100% of the capital stock of PATS, Inc. for an equity purchase price of approximately $41,500,000 pursuant to that certain Stock Purchase and Sale Agreement dated as of December 15, 1998, by and among PATS, Inc., the principal shareholders of PATS, Inc. and Company." B. The definition of "Pro Rata Share" in Subsection 1.1 of the Credit Agreement is hereby amended by deleting subpart (ii) in its entirety and substituting in the place of such language the following: "(ii)(A) with respect to all payments, computations and other matters relating to the Original Tranche B Term Loan Commitments or the Original Tranche B Term Loan of any Lender, the percentage obtained by DIVIDING (1) the Original Tranche B Term Loan Exposure of that Lender BY (2) the aggregate Original Tranche B Term Loan Exposure of all Lenders, (B) with respect to all payments, computations and other matters relating to the Additional Tranche B Term Loan Commitments or the Additional Tranche B Term Loan of any Lender, the percentage obtained by DIVIDING (1) the Additional Tranche B 2 Term Loan Exposure of that Lender BY (2) the aggregate Additional Tranche B Term Loan Exposure of all Lenders and (C) with respect to all payments, computations and other matters relating to the Tranche B Term Loan Commitments or the Tranche B Term Loan of any Lender, the percentage obtained by DIVIDING (1) the Tranche B Term Loan Exposure of that Lender BY (2) the aggregate Tranche B Term Loan Exposure of all Lenders," and the definition of "Pro Rata Share" in Subsection 1.1 of the Credit Agreement is hereby further amended by deleting the last sentence thereof in its entirety and substituting in the place of such language the following: "The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii)(A), (ii)(B), (ii)(C), (iii) and (iv) of the preceding sentence is set forth opposite the name of that Lender in SCHEDULE 2.1 annexed hereto." C. The definition of "Tranche B Term Loan Exposure" in Subsection 1.1 of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: "'TRANCHE B TERM LOAN EXPOSURE' means, with respect to any Tranche B Term Loan Lender as of any date of determination (i) prior to the First Amendment Closing Date, that Lender's Original Tranche B Term Loan Exposure on such date and (ii) on and after the First Amendment Closing Date, the outstanding principal amount of the Tranche B Term Loan of that Lender." D. The definition of "Tranche B Term Loan Lender" in Subsection 1.1 of the Credit Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: "'TRANCHE B TERM LOAN LENDER' means any Lender who holds an Original Tranche B Term Loan Commitment or who holds an Additional Tranche B Term Loan Commitment or who has made a Tranche B Term Loan hereunder, and any assignee of such Lender pursuant to subsection 10.1B." E. The definition of "Tranche B Term Loans" in Subsection 1.1 of the Credit Agreement is hereby amended by adding the following after "means the Tranche B Term Loans": ", including the Additional Tranche B Term Loans,". F. The definition of "Tranche B Term Notes" in Subsection 1.1 of the Credit Agreement is hereby amended by deleting the words "and (ii)" and substituting in the place of such language the following: ", (ii) the Additional Tranche B Term Notes and (iii)". 3 G. The definition of "Permitted Acquisition" in Subsection 1.1 of the Credit Agreement is hereby amended by replacing the period at the end of said definition with a semicolon, and adding the following after such semicolon: "PROVIDED FURTHER that the PATS Acquisition shall be exempted from the dollar limits set forth in this definition and shall not be included at any time in any calculations to determine compliance with any such dollar limits, but the PATS Acquisition shall otherwise comply with all other requirements set forth in this Agreement pertaining to the acquisition of a business by Company or one of its Wholly-Owned Subsidiaries that is a Domestic Subsidiary, including, without limitation, the requirements set forth in this definition and the requirements set forth in subsections 6.7 and 6.8, and, subject to such compliance, the PATS Acquisition shall be deemed to be a Permitted Acquisition." .2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND LOANS A. Subsection 2.1A(ii) is hereby amended by deleting it in its entirety and substituting the following therefor: "(ii) TRANCHE B TERM LOANS. Each Tranche B Term Loan Lender having an Original Tranche B Term Loan Commitment severally agrees to lend to Company on the Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Original Tranche B Term Loan Commitments and each Tranche B Term Loan Lender having an Additional Tranche B Term Loan Commitment severally agrees to lend to Company on the First Amendment Closing Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Additional Tranche B Term Loan Commitments, in each case to be used for the purposes identified in subsection 2.5A. The amounts of each Tranche B Term Loan Lender's Original Tranche B Term Loan Commitment and each Tranche B Term Loan Lender's Additional Tranche B Term Loan Commitment are set forth opposite such Tranche B Term Loan Lender's name on SCHEDULE 2.1 annexed hereto. The aggregate amount of the Original Tranche B Term Loan Commitments is $45,000,000, the aggregate amount of the Additional Tranche B Term Loan Commitments is $20,000,000 and the aggregate amount of the Tranche B Term Loan Commitments is $65,000,000; PROVIDED that the Tranche B Term Loan Commitments of Tranche B Term Loan Lenders shall be adjusted to give effect to any assignments of the Tranche B Term Loan Commitments pursuant to subsection 10.1B. Each Tranche B Term Loan Lender's Original Tranche B Term Loan Commitment shall expire immediately and without further action on the earlier of (i) October 31, 1998, if the Tranche B Term Loans (other than the Additional Tranche B Term Loans) are not made on or before that date and (ii) at the close of business on the Closing Date. Each Tranche B Term Loan 4 Lender's Additional Tranche B Term Loan Commitment shall expire immediately and without further action on the earlier of (i) February 12, 1999, if the Additional Tranche B Term Loans are not made on or before that date and (ii) at the close of business on the First Amendment Closing Date. Company may make only one borrowing under the Original Tranche B Term Loan Commitments and may make only one borrowing under the Additional Tranche B Term Loan Commitments. Amounts borrowed under this subsection 2.1A(ii) and subsequently repaid or prepaid may not be reborrowed." B. Subsection 2.1D is hereby amended by adding the following sentence after the last period of said subsection: "Company shall execute and deliver on the First Amendment Closing Date to each Tranche B Term Loan Lender with an Additional Tranche B Term Loan Commitment (or to Administrative Agent for that Lender) that has so requested at least one Business Day prior to the First Amendment Closing Date an Additional Tranche B Term Note substantially in the form of EXHIBIT V annexed hereto to evidence that Lender's Additional Tranche B Term Loan, in the principal amount of that Lender's Additional Tranche B Term Loan and with other appropriate insertions." C. Subsection 2.2A(i)(a) is hereby amended by deleting the table set forth following subsection 2.2A(i)(a)(2) in its entirety and substituting the following therefor:
Consolidated Leverage Ratio Applicable Eurodollar Applicable Base --------------------------- Rate Rate Margin Margin ------------- ---------- Greater than or equal to 2.75% 1.50% 5.00:1.00 Greater than or equal to 2.50% 1.25% 4.50:1.00 but less than 5.00:1.00 Greater than or equal to 2.25% 1.00% 4.00:1.00 but less than 4.50:1.00 Greater than or equal to 1.75% 0.50% 3.50:1.00 but less than 4.00:1.00 5 Greater than or equal to 1.50% 0.25% 3.00:1.00 but less than 3.50:1.00 Less than 3.00:1.00 1.00% 0.00%
A. Subsection 2.2A(i) is hereby further amended by deleting the paragraph which begins "PROVIDED that until the delivery" in its entirety and substituting the following therefor: "PROVIDED that until the First Amendment Closing Date, the applicable margin for Tranche A Term Loans, Working Capital Loans and Acquisition Loans that are Eurodollar Rate Loans shall be 2.25% per annum and for Tranche A Term Loans, Working Capital Loans, Swing Line Loans and Acquisition Loans that are Base Rate Loans shall be 1.00% per annum; PROVIDED FURTHER that from the First Amendment Closing Date until the delivery of the first Margin Determination Certificate pursuant to subsection 6.1(iv) after the six-month anniversary of the First Amendment Closing Date, the applicable margin for Tranche A Term Loans, Working Capital Loans and Acquisition Loans that are Eurodollar Rate Loans shall be 2.75% per annum and for Tranche A Term Loans, Working Capital Loans, Swing Line Loans and Acquisition Loans that are Base Rate Loans shall be 1.50% per annum." B. Subsection 2.2A(i)(b) is hereby amended by deleting it in its entirety and substituting the following therefor: "(b) Subject to the provisions of subsection 2.2E, the Tranche B Term Loans shall bear interest through maturity as follows: "(1) if a Base Rate Loan, then (A) from the Closing Date until the First Amendment Closing Date, at the sum of the Base Rate PLUS 1.25% per annum and (B) from the First Amendment Closing Date until maturity, at the sum of the Base Rate PLUS 1.75% per annum; or "(2) if a Eurodollar Rate Loan, then (A) from the Closing Date until the First Amendment Closing Date, at the sum of the Adjusted Eurodollar Rate for the Interest Period applicable to such Loan PLUS 2.50% per annum and (B) from the First Amendment Closing Date until maturity, at the sum of the Adjusted Eurodollar Rate for the Interest Period applicable to such Loan PLUS 3.00% per annum;" C. Subsection 2.2B is hereby amended by deleting the phrase "if available" contained in the fourth line from the beginning of said subsection and substituting the phrase "if available to each Lender" therefor. 6 D. Subsection 2.2B is hereby further amended by replacing the period at the end of said subsection with a semicolon and adding the following after such semicolon: "PROVIDED, FURTHER that with respect to each Additional Tranche B Term Loan made on the First Amendment Closing Date, if the Administrative Agent shall agree, the initial Interest Period will commence on the Business Day on which such Additional Tranche B Term Loan is made and shall end on the last day of the then existing Interest Period in respect of the then outstanding Original Tranche B Term Loans." 7 E. Subsection 2.4A(ii) is hereby amended by deleting the table set forth therein in its entirety and substituting the following therefor:
--------------------------------------------------------------- Scheduled Repayment Date Scheduled Repayment of Tranche B Term Loans --------------------------------------------------------------- December 31, 1998 $112,500 March 31, 1999 $162,500 June 30, 1999 $162,500 September 30, 1999 $162,500 December 31, 1999 $162,500 March 31, 2000 $162,500 June 30, 2000 $162,500 September 30, 2000 $162,500 December 31, 2000 $162,500 March 31, 2001 $162,500 June 30, 2001 $162,500 September 30, 2001 $162,500 December 31, 2001 $162,500 March 31, 2002 $162,500 June 30, 2002 $162,500 September 30, 2002 $162,500 December 31, 2002 $162,500 March 31, 2003 $162,500 June 30, 2003 $162,500 September 30, 2003 $162,500 December 31, 2003 $162,500 March 31, 2004 $162,500 June 30, 2004 $162,500 September 30, 2004 $162,500 December 31, 2004 $15,287,500 March 31, 2005 $15,287,500 June 30, 2005 $15,287,500 September 30, 2005 $15,287,500 ---------------------- Total $65,000,000
8 A. Subsection 2.5A is hereby amended by: (i) deleting the first sentence thereof in its entirety and substituting the following therefor: "The proceeds of the Term Loans (other than the Additional Tranche B Term Loans), together with other funds available to Company, shall be applied by Company to pay the Acquisition Financing Requirements.", (ii) deleting the reference to "Tranche B Term Loans" contained in the third sentence thereof and substituting the term "Original Tranche B Term Loans" therefor and (iii) adding the following sentence at the end of such subsection: "The proceeds of the Additional Tranche B Term Loans shall be applied by Company to finance directly or indirectly the costs of the PATS Acquisition." B. Subsection 7.3(viii) is hereby amended by deleting the reference therein to "subsection 7.7(viii)" and substituting the phrase "subsection 7.7(vii)" therefor. .2 SUBSTITUTION AND MODIFICATION OF SCHEDULES A. SCHEDULE 2.1: LENDERS' COMMITMENTS AND PRO RATA SHARES. SCHEDULE 2.1 to the Credit Agreement is hereby amended by deleting it in its entirety and substituting therefor the schedule attached as ANNEX A to this Amendment. B. SCHEDULE 5.1: SUBSIDIARIES. SCHEDULE 5.1 to the Credit Agreement is hereby amended by adding thereto the information contained in ANNEX B to this Amendment. C. SCHEDULE 5.11: ENVIRONMENTAL MATTERS. SCHEDULE 5.11 to the Credit Agreement is hereby amended by adding the information contained in ANNEX C to this Amendment. SECTION 2. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon, and the obligations of Tranche B Term Loan Lenders to make Additional Tranche B Term Loans are subject to, the satisfaction on or prior to February 12, 1999 of all of the following conditions precedent and the conditions set forth in Section 5E hereof (the date of satisfaction of such conditions being referred to herein as the "FIRST AMENDMENT EFFECTIVE DATE"): A. On or before the First Amendment Effective Date, Company shall deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, 9 where appropriate, for each Lender and its counsel) the following, each, unless otherwise noted, dated the First Amendment Effective Date: 1 Certified copies of its Certificate of Incorporation, together with a good standing certificate from the Secretary of State of the State of Delaware, each dated a recent date prior to the First Amendment Effective Date; 2 Copies of its Bylaws, certified as of the First Amendment Effective Date by its corporate secretary or an assistant secretary; 3 Resolutions of its Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment, certified as of the First Amendment Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; 4 Signature and incumbency certificates of its officers executing this Amendment; and 5 Executed originals of this Amendment, executed by Company and by each Subsidiary Guarantor, and, subject to the provisions of subsection 2.1D, executed originals of any Additional Tranche B Term Notes requested by any Tranche B Term Loan Lender at least one Business Day prior to the First Amendment Closing Date. B. Lenders shall have received originally executed copies of one or more favorable written opinions of Davis Polk & Wardwell, Spolin & Silverman and other counsel reasonably acceptable to the Agents, each counsel for Company, in form and substance reasonably satisfactory to Administrative Agent and its counsel, dated as of the First Amendment Effective Date and setting forth, collectively, substantially the matters in the opinions designated in ANNEX D to this Amendment. C. All documents executed or submitted in connection with the transactions contemplated hereby by or on behalf of Company or any of its Subsidiaries shall be reasonably satisfactory in form and substance to Agents and their counsel; Agents and their counsel shall have received all information, approvals, opinions, documents or instruments that Agents or their counsel shall have reasonably requested. D. On or before the First Amendment Effective Date, the PATS Acquisition shall have been consummated and, simultaneously therewith, PATS, Inc. shall execute and deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) all documents necessary to be signed upon such consummation pursuant to subsection 6.7, including, but not limited to, a Subsidiary Pledge Agreement, an acknowledgement to the Security Agreement and a counterpart of the Subsidiary Guaranty, each dated the First Amendment Effective Date, together with the other documents required by subsection 6.7. 10 E. On or before the First Amendment Effective Date, Company shall have paid any and all (1) amendment fees due as set forth in the fee letter entered into for purposes of this Amendment and (2) attorneys' fees, expenses and disbursements of counsel to Agents incurred in connection with this Amendment. Section 3. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete on and as of the First Amendment Closing Date and on and as of the First Amendment Effective Date: A. CORPORATE POWER AND AUTHORITY. Each of Company and each of its Subsidiaries has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of each of Company and each of its Subsidiaries. C. NO CONFLICT. The execution, delivery and performance by each of Company and each of its Subsidiaries of this Amendment and the performance by Company of the Amended Agreement do not and will not (i) violate any provision of (x) any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries where such violations in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (y) the Certificate or the Articles of Incorporation or Bylaws of Company or any of Company's Subsidiaries or (z) any order, judgment or decree of any court or other agency of government binding on Company or any of Company's Subsidiaries where such violations in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (ii) conflict with, result in a breach of or constitute a default under any Contractual Obligation of Company or any of its Subsidiaries where such conflict, breach or default in the aggregate have had or could reasonably be expected to have a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of Company's Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of or consent of any Person under any Contractual Obligation of Company or any of Company's Subsidiaries, except for such approvals or consents which will be obtained on or before the Merger Date or such approvals or consents the failure of which to obtain has not had and could not reasonably be expected to have a Material Adverse Effect. D. GOVERNMENTAL CONSENTS. The execution, delivery and performance by each of Company and each of its Subsidiaries of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other 11 governmental authority or regulatory body other than any such registrations, consents, approvals, notices or other actions (x) that have been made, obtained or taken on or prior to the date on which such registrations, consents, approvals, notices or other actions are required to be made, obtained or taken, as the case may be, and are in full force and effect or (y) the failure of which to make, obtain or take has not had and could not reasonably be expected to have a Material Adverse Effect. E. BINDING OBLIGATION. Each of this Amendment and the Amended Agreement has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. Section 4. ACKNOWLEDGEMENT AND CONSENT Each of the Subsidiary Guarantors is a party to a Subsidiary Guaranty and such Subsidiary Guarantor has guarantied the Obligations. Each Subsidiary Guarantor hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Subsidiary Guarantor hereby confirms that the Subsidiary Guaranty to which it is a party or otherwise bound will continue to guaranty to the fullest extent possible the payment and performance of all "Guarantied Obligations" as such term is defined in the applicable Subsidiary Guaranty, including without limitation the payment and performance of all such "Guarantied Obligations" in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement. Each Subsidiary Guarantor acknowledges and agrees that the Subsidiary Guaranty to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Subsidiary Guarantor represents and warrants that all representations and warranties contained in the Amended 12 Agreement and in the Subsidiary Guaranty to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the First Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Subsidiary Guarantor acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Subsidiary Guarantor is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Subsidiary Guarantor to any future amendments to the Credit Agreement. Section 5. MISCELLANEOUS A. Reference to and effect on the Credit Agreement and the other Loan Documents. (i) On and after the First Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Agents and their counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND 13 SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 hereof, the effectiveness of which is governed by Section 2 hereof) shall become effective upon the execution of a counterpart hereof by Company, Requisite Lenders, each of the Tranche B Term Loan Lenders with an Additional Tranche B Term Loan Commitment, Syndication Agent, Administrative Agent and the Subsidiary Guarantors and receipt by Company and Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 14 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. DECRANE AIRCRAFT HOLDINGS, INC., a Delaware corporation By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer AEROSPACE DISPLAY SYSTEMS, INC., a Delaware corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer AUDIO INTERNATIONAL, INC., an Arkansas corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer AVTECH CORPORATION, a Washington corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer S-1 CORY COMPONENTS, INC., a California corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer DETTMERS INDUSTRIES, INC., a Delaware corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer ELSINORE AEROSPACE SERVICES, INC., a California corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer ELSINORE ENGINEERING, INC., a California corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer S-2 HOLLINGSEAD INTERNATIONAL, INC., a California corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer TRI-STAR ELECTRONICS INTERNATIONAL, INC., a California corporation (for purposes of Section 4 only) as a Subsidiary Guarantor By: /s/ JOHN R. HINSON ------------------------------------------ Name: John R. Hinson Title: Secretary and Chief Financial Officer S-3 DLJ CAPITAL FUNDING, INC., as a Tranche B Term Loan Lender with an Additional Tranche B Term Loan Commitment, as a Lender and as Syndication Agent By: /s/ ------------------------------------------ Name: Title: S-4 THE FIRST NATIONAL BANK OF CHICAGO, as a Tranche B Term Loan Lender with an Additional Tranche B Term Loan Commitment, as a Lender and as Administrative Agent By: /s/ ------------------------------------------ Name: Title: S-5 ANNEX B INFORMATION TO BE ADDED TO SCHEDULE 5.1 PATS, Inc., a Maryland corporation 9570 Berger Road Columbia, Maryland 21046-1569 PATS AIRCRAFT AND ENGINEERING CORPORATION, a Maryland corporation 9570 Berger Road Columbia, Maryland 21046-1569 FLIGHT REFUELING, INC., a Maryland corporation 9570 Berger Road Columbia, Maryland 21046-1569 PATRICK AIRCRAFT TANK SYSTEMS, INC., a Maryland corporation 9570 Berger Road Columbia, Maryland 21046-1569 PATS SUPPORT, Inc., a Maryland corporation 6 Nanticoke Avenue Georgetown, Delaware 19947 B-1 EX-10.11 45 EXHIBIT 10.11 LEASE AGREEMENT THIS LEASE AGREEMENT (the "Lease"), made as of the first day of June, 1991 by and between Botzler-Emery Associates Guilford Ten Limited Partnership, a Maryland partnership ("Landlord") and BATS, Inc., a Maryland corporation ("Tenant"). WITNESSETH 1. DEMISED PREMISES: In consideration of the rent hereinafter reserved and of the covenants hereinafter contained, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the space described on Exhibit A generally known as 9570 Berger Road, Columbia, Maryland, attached hereto, containing 65,923 square feet, more or less, which space is hereinafter referred to as the "Premises." 2. TERM: This Lease shall be for a term of ten (10) years, commencing on the first day of June, 1991, and ending on the last day of May, 2001 both dates inclusive, (the "Term") unless the Lease is sooner terminated or extended, provided, however, that if Landlord is unable to deliver possession of the Premises in substantially habitable condition on June 1, 1991, the Term shall be adjusted to commence with the delivery of possession of the Premises. In the event the Tenant shall take possession of the Premises on any day other than the first day of any calendar month, the Tenant shall pay PRO RATA rent until the end of that calendar month and the Term of this Lease shall commence on the first day of the following month. 3. OPTION TO RENEW AND EXTENSION: The term of years herein reserved may, at Tenants option, be renewed and extended for two (2) successive terms of five (5) years each for the same rent and subject to all terms, conditions and covenants applicable to the Term. Tenant shall give notice of its exercise of such option to renew and extend not later than one hundred eighty (180) days prior to the end of such term and, in the event Tenant shall fail to give such notice, the parties agree that it shall be conclusively deemed and presumed that Tenant has affirmatively exercised the option to renew and extend. 4. MINIMUM RENT: During the term hereof Tenant agrees to pay a minimum annual rent of three hundred and seventy five thousand dollars ($375,000), payable without diminution, counterclaim, deduction, set-off, or demand, in equal monthly installments of thirty one thousand, two hundred and fifty dollars ($31,250), the first installment payable upon commencement of the Term of this Lease and the remaining installments payable in advance on the first day of each calendar month during the Term. All rent and other payments due from Tenant to Landlord shall be paid to the Landlord at 9570 Berger Road, Columbia, MD 21046 during regular 1 business hours. If any installment of rent accruing hereunder or any other sums payable hereunder shall not be paid with five (5) days after the due date, the rental and such other sums due shall, without affecting any of Landlord's other rights under this Lease, be increased by a late charge of 5%, or $75.00 whichever is greater, per month until paid, time being of the essence of this Lease. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of the rent stipulated shall be deemed to be other than on account of the stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check for payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in this Lease. It is the intention of the parties to this Lease Agreement that the initial annual Minimum rent applicable to the premises shall be computed by multiplying the total number of square feet within the gross building area by $5.50, which sum shall be the initial Minimum Rent. 5. DEFINITIONS: The following definitions shall apply to the terms used in this Lease: A. The term "Tax Year" means the period from July 1 of any calendar year through June 30 of the next calendar year, unless a different tax year is adopted for Real Estate Taxes by any taxing authority, in which event the term "Tax Year" shall mean the tax year so adopted. B. The term "Building" means the structure on the Premises for use and occupancy by the Tenant. C. The term "Lease Year" shall mean the successive 12-month periods during the term of the lease, each period commencing on the first day of the calendar month in which the term commencement date of this Lease falls. D. The term "Minimum Rent" means the rental set forth in Paragraph 4 of the Lease, as adjusted from time to time in accordance with Paragraph 6 below. 6. RENT ADJUSTMENT: Effective each and every Lease Year after the first Lease Year, the monthly Minimum Rent shall be increased by the rate of three percent (3%) of the Minimum Rent paid by the tenant during the year preceding each annual increase. For example, if the Minimum Rent for the preceding Lease Year was $1,000 than the Minimum Rent for the current Lease Year shall be increased to $1,030.00, the following year would be $1,060.90. 2 7. TAXES, UTILITIES AND INSURANCE: (a ) In addition to and not in lieu of all or any portion of the Minimum Rent, the Tenant shall pay as additional rent all State, County, City and other AD VALOREM real estate taxes, together with any sewer and water rent charges, including, without limitation, front foot benefit charges or metropolitan sanitary district charges from the date upon which the Landlord delivers possession to the Tenant. The Tenant shall deliver a copy of a receipted tax bill to Landlord on or before September 30 of each year. (b) Tenant shall pay all charges for gas, electricity, light, heat, all public charges for sanitary sewage discharged from the Premises and for water consumed on the Premises, power and all other utilities and telephone or other communication services used, rendered or supplied upon or in connection with the Premises. (c) Tenant shall keep the Improvements insured throughout the term of this Lease, and any renewal term, against loss or damage by fire and such other risks as may be included in a special Multi-Peril Hazard Insurance Policy providing coverage in an amount at least equal to the full insurable replacement value of the Improvements. Such insurance shall be effected under an enforceable policy naming Landlord and any mortgagee as insured, as their respective interests may appear, issued by an insurer acceptable to Landlord and its mortgagee, licensed in the state where the policy is issued and where the property is located. The original of such policy shall be delivered to Landlord. Said policy shall contain an agreed amount clause and a waiver of subrogation clause and shall not contain any co-insurance provision. The policy must provide for 100% of the cost of replacement in the event of a claim. In the event of a mortgage on the Premises, the policy shall contain the standard mortgagee clause in favor of the mortgagee. Within 15 days after the premium on the policy shall be due and payable, the Landlord and its mortgagee(s) shall be furnished with satisfactory evidence of its payment. Said policy shall provide that cancellation shall not be made without 30 days written notice to Landlord and its mortgagee. 8. SECURITY DEPOSITS: Landlord will not require a Security Deposit of Tenant. 9. REPAIRS: The Tenant agrees to maintain the premises in good repair during the term of this Lease, at its own expense, including, without limitation, the floors, walls, ceiling, interior or exterior doors, inside plumbing, all heating, ventilating, and other equipment and fixtures installed by the Landlord. Tenant agrees that it will at its own expense maintain and replace when necessary all equipment, including but not limited, to doors and/or door closures, fixtures, windows and floor coverings and that it will redecorate the Premises when necessary. Tenant agrees that it will have done at its own expense any work at the Premises resulting from Tenant's occupancy which may be required by law or regulation or lawful 3 authority. Landlord agrees within a reasonable time after receipt of written notice from the Tenant to make all capital repairs reasonably necessary to the structural portion of the Premises and roof subject to Paragraph 13 hereof. The Tenant also agrees, at its own expense to repair any damage caused by the operation of its business or by the actions of its employees, agents or invitees on or about the Premises, the Building, Land or the common areas and facilities, including, without limitation, any damage to the parking areas caused by the operation (including, without limitation, the driving, loading or unloading) of delivery vans, trash, carts or vehicles of any sort servicing Tenant's business or the Premises. 10. USE OF PREMISES: Tenant covenants to use the Premises only for offices and production areas for carrying on the business of developing and manufacturing aircraft equipment and other lawful purposes and to permit Landlord to transmit heat, air conditioning and electric current through the Premises at all times at the discretion of Landlord, provided, however, that Landlord shall not exercise this right in such a way as to unreasonably inconvenience Tenant or intefere with Tenant's use of Premises. 11. TENANT'S AGREEMENTS: Tenant covenants and agrees: A. To pay to Landlord the Minimum rent, additional and other rent amounts during the Term and until possession of the premises is redelivered to Landlord free and clear of debris. B. To save Landlord harmless and indemnified from all loss, damage, liability or expense incurred, suffered or claimed by any person by reason of Tenant's neglect or use of the Premises, Land or Building or of anything therein, or of water, steam, electricity or other utility; or by reason of any injury, loss or damage to any person or property upon the Premises not caused by the gross negligence of Landlord and to be answerable for all nuisances caused or suffered on the Premises, or caused by Tenant in the Building, Land or common areas and facilities or on the approaches thereto. C. Not to strip or overload, damage or deface the Premises or hallways, stairways, elevator, common areas and facilities or other approaches thereto, of the Building, or fixtures therein or used therewith, nor to permit any hole to be made in any of the same. D. Not to suffer or permit any trade or occupation to be carried on or use made of the Premises which shall be unlawful, noisy, offensive or injurious to any person or property, or such as to increase the danger of fire or affect or make void or voidable any insurance on the Building, or which may render any increased or extra premium payable for such insurance, or which shall be 4 contrary to any law or ordinance, rule or regulation, from time to time established by any public authority. Tenant expressly agrees to conform to all rules and regulations from time to time established by the Insurance Rating Bureau of the Jurisdiction in which the Premises are located. E. Not to place upon the interior or exterior of the Building or any window or any part thereof or door of the Premises any placard, sign, lettering, window covering or drapes, except such and in such place and manner as shall have been first approved in writing by Landlord; to have installed at Tenant's expense a building standard sign, as determined by Landlord, for the entrance door to the Premises; and not to use any floor adhesive in the installation of any carpeting. F. That all automobile parking areas, driveways and other facilities furnished by Landlord including employee parking areas, pedestrian sidewalks and ramps, landscaped areas, exterior stairways and other common areas, facilities and improvements provided by Landlord for the general use in common of tenants, their agents, employees, invitees and customers shall at all times be subject to the exclusive control and managment of Landlord. G. Except upon written permission from Landlord, Tenant shall not, by its agents, servants, employees, clients or invitees occupy a number of parking spaces greater than two (2) for each 2000 square feet of the Premises. 12. LANDLORD'S RIGHT OF ACCESS: Landlord shall have the right to enter the Premises during usual business hours for the purpose of inspecting or making repairs to the Premises or Building. If the repairs necessitate the cutting of any carpeting belonging to Tenant, Landlord shall have no obligation to replace said carpeting but shall repair same. Landlord shall have the right to show the Premises to prospective tenants during the last six (6) months of the Lease term. 13. ALTERATIONS: Tenant will not without the prior written consent of Landlord paint the exterior of the Premises or make or permit anyone to make any alterations in or additions to the exterior of the Premises, nor will Tenant install any equipment or any kind that will require any alterations or additions to or the use of the water system, heating system, plumbing system, air conditioning system or electrical system, nor will Tenant install a television antenna or air conditioning units of any type on the roof, in the windows or upon the exterior of the Premises. If any such alterations or additions are made without such consent, Landlord may correct or remove them, and Tenant shall be liable for any and all expenses incurred by Landlord in the performance 5 of this work. At the termination of this Lease all such alterations or improvements made to the Premises shall remain on the Premises and become property of the Landlord, unless Landlord directs that such alteration or improvements be resolved, in which event Tenant shall restore the Premises to their original condition. 14. DAMAGE TO BUILDING OR PREMISES: If the Premises are damaged or destroyed by fire or other casualty from any cause, so as to render the Premises unfit for use and occupancy, and such damage and destruction was without the fault or neglect of Tenant, his servants, employees, agents, visitors or licensees then a prop rata portion of the rent, in accordance with the nature and extent of the injury to Premises, shall be suspended or abated until the Premises have been repaired. Landlord will proceed at its expense, as expeditiously as practicable, to repair the damage, unless, because of the extent of the damage or destruction, Landlord should decide not to repair or restore the Premises or the Building, in which event and at Landlord's sole option, Landlord may terminate this Lease forthwith, by giving Tenant's a written notice of its intention to terminate with ninety (90) days after the date of the casualty. Notwithstanding the foregoing, in case the fire or other casualty shall be caused by the carelessness, negligence or improper conduct of Tenant, its agents, servants, employees, visitors or licensees then, Tenant shall be liable for the full amount of rental during the period of restoration or until cancellation, and all required repairs shall be made at Tenants expense. In no event shall Landlord be required to repair, restore or rebuild any portions of the premises constituting a part of Tenant's leasehold improvements or other Tenant work, trade fixtures, equipment, or personal property. No compensation or claim will be paid by Landlord, or diminution of rent allowed by Landlord, by reason or inconvenience, annoyance or injury to business arising from the necessity of repairing any other portion of the Building, however the necessity may occur. Notwithstanding any provision contained in this Lease Agreement to the contrary, the Tenant shall have the right to terminate this Lease Agreement in the event the Premises are damaged to the extent that said premises cannot be restored within 210 days next following the date upon which the damage occurs. 15. HOLD HARMLESS; INSURANCE: (a) Tenant agrees that it will indemnify and save Landlord and its agent(s) harmless of and from any and all liabilities, damages, causes of action, suits, claims, judgments, costs and expenses of any kind (including attorney's fees) (i) relating to or arising from the possession, use, occupation, management, repair, maintenance or control of the Premises, or any portion thereof, or (ii) arising from or in connection with any act or omission of Tenant or Tenant's agents, employees or invitees, or (iii) resulting from any default, violation of nonperformance of this Lease by Tenant, or (iv) resulting from injury to person or property or loss of life sustained in or about the Premises. To assure such indemnity, Tenant shall carry and keep in full force and effect at all times 6 during the term of this Lease for the protection of Landlord, its agent(s) and Tenant herein, public liability insurance with limits of at least One Million Dollars ($1,000,000.00) for each accident and Five Hundred Thousand Dollars ($500,000.00) for each separate injury, and property damage insurance in the amount of One Hundred Thousand Dollars ($100,000.00). Tenant certifies that Landlord and its agent(s) shall be maintained at all times as an additional names insured under such insurance policy. In the event Tenant shall fail to maintain such policy of insurance then Landlord may, after three (3) days' written notice to Tenant, obtain such policy and pay the premium thereon and the amount so paid shall be added to the next installment of Minimum Rent. (b) It is understood and agreed that all personal property, goods, wares and merchandise in the Premises shall be and remain at the sole risk of Tenant or those claiming through Tenant, and Landlord shall not be liable for any damage to or loss of such personal property, goods, wares and merchandise arising from bursting, overflowing or leaking of the roof or of water, sewer or steam pipes, or from heating or plumbing fixtures, or from any other cause whatsoever, unless said damages are caused through the gross negligence of Landlord. Tenant certifies that it has either obtained its own insurance coverage for losses to personal property of any kind which may be in or on the Premises or has decided to self-insure for such losses. 16. SUBORDINATION: Tenant covenants and agrees that all of its rights hereunder are and shall be subject and subordinate to the lien of any first mortgage hereafter placed on the demised Premises or any part thereof, except the Tenant's property or trade fixtures, and to any and all renewals, modifications, consolidations, replacements, extensions or substitutions of any first mortgage (which is hereinafter termed the mortgage). Such subordination shall be automatic, without the execution of any further subordination agreement by Tenant. If, however, a written subordination agreement, consistent with this provision, is required by a mortgagee, Tenant agrees to execute, acknowledge and deliver the same and in the event of failure so to do, Landlord may, in addition to other remedies for breach of covenant hereunder, execute, acknowledge and deliver the same as the agent or attorney in fact of Tenant, and Tenant hereby irrevocably constitutes Landlord its attorney-in-fact for such purpose. 17. ATTORNMENT AND NONDISTURBANCE: (a) If, at any time during the term of this Lease, the Landlord of the demised Premises shall be the holder of a leasehold estate covering premises which include the demised Premises, and if such leasehold shall terminate or be terminated for any reason, or if, at any time during the term of Lease a mortgage to which this Lease is subordinate shall be foreclosed, Tenant agrees at the election and upon demand of any owner of the premises which include the demised Premises, or of any mortgagee in possession thereof, or of any holder of a leasehold thereafter affecting premises which include the demised Premises, or of any purchaser 7 at foreclosure, to attorn, from time to time, to any such owner, mortgagee, holder or purchaser upon the terms and conditions set forth herein for the remainder of the term demised in this Lease. Provided however, that Tenant shall not be obligated to attorn unless, if Tenant shall so request in writing, such holder, owner, mortgagee or purchaser shall execute and deliver to Tenant an instrument wherein said holder, owner, mortgagee or purchaser agrees that so long as Tenant performs all the terms, covenants and conditions of this Lease, on Tenant's part to be performed, Tenant's possession under the provisions of this Lease shall not be disturbed by such holder, owner, mortgagee or purchaser. (b) The foregoing provisions shall inure to the benefit of any such owner, mortgagee, holder or purchaser and shall apply notwithstanding that this Lease may terminate upon the termination of any such leasehold estate or upon such foreclosure, and shall be self-operative upon any such demand, without requiring any further instrument to give effect to such provisions. Tenant, however, upon demand of any such owner, mortgagee, holder or purchaser, agrees to execute, from time to time, an instrument in confirmation of the foregoing provisions, satisfactory to any such owner, mortgagee, holder or purchaser, in which Tenant shall acknowledge such attornment and set forth herein and shall apply for the remainder of the term originally demised in this Lease. Nothing contained in this article shall be construed to impair any right otherwise exercisable by any 18. SUBLETTING AND ASSIGNMENT: Tenant will not sublet the Premises or any part thereof or transfer possession or occupancy thereof or rent desk space therein to any person, firm or corporation or transfer or assign this Lease without the prior written consent of Landlord, nor shall any subletting or assignment thereof be effected by operation of law or otherwise without the prior written consent of Landlord. Further, no such assignment or subletting nor the consent of Landlord thereto shall release, discharge or affect the liability of Tenant, as provided in this Lease, for the full discharge or affect the liability of Tenant, as provided in this Lease, for the full term hereof. Any consent by Landlord to an assignment or subletting of this Lease shall not constitute a waiver of the necessity for such consent as to any subsequent assignment or subletting. If Tenant shall, without the prior written consent of Landlord, transfer, assign or hypothecate any stock or interest in the Tenant, so as to result in a change in the control thereof by the person, persons or entities owning a controlling interest therein as of the date of this Lease, then Landlord shall have the option to terminate this Lease at any time after actual notice of such change by giving Tenant at least sixty (60) days prior written notice and, on the date fixed in such notice for termination of this Lease, this Lease shall expire and come to end with the same effect as if said date were originally set forth in this Lease for expiration of the term. The mere receipt by Landlord or rent from a party other than Tenant shall not be deemed actual notice of any change in control or ownership of 8 Tenant. This provision shall not be applicable to the transfer of any stock in the Tenant, to a member of the immediate family or any person(s) owning as of the date of this Lease a controlling interest therein (i.e., the spouse and direct lineal ancestor or descendant of such person or such person's spouse). 19. CONDEMNATION: This Lease shall terminate and the rental payable hereunder shall be abated to the date of such termination in the event of the forceable leasing in excess of one year or condemnation of the Premises or any part thereof by any competent authority under the right of eminent domain for any public or quasi-public use or purposes which renders the balance of the Premises economically unsuitable. If the nature, location or extent of any proposed condemnation affecting the Building is such that Landlord elects in good faith to demolish all or substantially all of the Building, the Landlord may terminate this Lease by giving at least sixty (60) days' written notice of termination to Tenant at any time after such condemnation, and this Lease shall terminate on the date specified in such notice. The forceable leasing by any competent authority of any portion of the Building other than the Premises shall have no effect whatever upon this Lease. In case of any taking or condemnation, whether or not the term of this Lease shall cease and terminate, the entire award shall be the property of Landlord, and Tenant hereby assigns to Landlord all of his right, title and interest in and to any such award. Tenant, however, shall be entitled to claim, prove and receive in the condemnation proceeding such awards as may be allowed for fixtures and other equipment installed by it, but only if such awards shall be made by the Court in addition to the award by it to Landlord for the Land and Building or part thereof so taken. 20. QUIET ENJOYMENT: Landlord covenants that, upon performance by Tenant of all covenants herein, Tenant shall have and hold the Premises free from any interference from Landlord, except as otherwise provided herein. 21. TENANT'S DEFAULT: Tenant shall be in default of this Lease upon the happening of any one of the following: A. Failure to pay the rent or any other sum required by the terms of this Lease within five (5) days after the due date. B. The commencement of any action or proceeding or the dissolution or liquidation of Tenant, or for the appointment of a receiver or trustee of Tenant's property, and the failure to discharge any such action within twenty (20) days. C. The making of any assignment for the benefit of creditors, or if Tenant is declared bankrupt. D. The abandonment of the Premises by Tenant. 9 E. Failure to perform or observe any other term, covenant or condition of this Lease and the continuance therefore for twenty (20) days after written notice from Landlord. In addition to any other remedies contained herein the Landlord at his sole discretion may convert this Lease to a month-to-month lease if the Tenant has been in default for any rent or other amounts owned for over (30) days. Upon default, as hereinabove defined, Landlord, without notice to Tenant, may enter upon the Premises without terminating this Lease and do any acts which Landlord may deem necessary to cure such default, and Tenant agrees to pay Landlord any damage and/or expense incurred thereby. Furthermore, upon default Landlord may, on ten (10) days advance written notice to Tenant, terminate this Lease and, with or without legal process, take possession of the Premises and remove Tenant or any other occupant. Landlord shall be entitled to recover as damages from Tenant an amount equal to the balance of all rent due to the end of the Lease term, together with all legal and other expenses incurred, including the cost of reletting the Premises. Tenant shall be credited however, with any net amounts received by Landlord from the reletting of the Premises. No act of Landlord shall be considered an acceptance of a surrender of the Premises, unless in writing. Landlord may maintain separate actions each month to recover the damages, without waiting to the end of the term of this Lease. 22. LEGAL EXPENSES: If any action or proceeding is commenced in which Landlord intervenes or is made a party by reason of being the Landlord under the Lease, or if Landlord shall deem it necessary to engage attorneys or institute any suit against Tenant in connection with the enforcement of Landlord's rights under the Lease, the violation of any term of the Lease, the declaration of Landlord's rights hereunder, or the protection of Landlord's interests under the Lease, Tenant shall reimburse Landlord for its expenses incurred as a result thereof including, without limitation, court costs and reasonable attorneys' fees. 23. SURRENDER OF PREMISES: Upon the expiration or termination of this Lease, Tenant shall quit and surrender the Premises to Landlord broom clean and in good order ordinary wear and tear excepted, and shall remove all of its property therefrom provided, however, that upon surrender of the premises, it is in compliance with all applicable building code requirements. The obligations of this Paragraph shall survive the termination of this Lease. In the event Tenant fails to remove furniture, trade fixtures or machinery from the Premises before the expiration of this Lease, it is agreed that Tenant is abandoning said furniture, trade fixtures and machinery and the same shall become the property of Landlord, who shall have the right to use, remove or dispose of same at Tenant's expense. 10 24, TENANT HOLDING OVER: If Tenant shall not immediately surrender possession of the Premises at the termination of the Lease, Tenant shall become a tenant month-to-month, provided rent shall be paid to and accepted by Landlord in advance at twice the Minimum Rent payable hereunder just prior to the termination of this Lease; but unless and until Landlord shall accept such rental from Tenant, Landlord shall continue to be entitled to retake or recover possession of the Premises as hereinbefore provided in case of default on the part of Tenant, and Tenant shall be liable to Landlord for any loss or damage Landlord may sustain by reason of Tenant's failure to surrender possession of the Premises immediately upon the expiration of the term of this Lease. If Tenant shall fail to surrender possession of the Premises immediately upon the expiration of the term hereof, Tenant hereby agrees that all obligations of Tenant and all rights of Landlord application during the term of this Lease shall be equally applicable during such period of subsequent occupancy, whether or not a month-to-month tenancy shall have been created as aforesaid. 25. LANDLORD'S LIABILITY: In no event shall Landlord including any successor assignee of all or any portion of Landlord's interest in the Building or Land, be personally liable or accountable with respect to any provision of this Lease. If Landlord shall be in breach or default with respect to any obligation hereunder or otherwise, Tenant agrees to look for satisfaction solely to the equity of Landlord in the Building and Land. The liability of Landlord, or other entity comprising Landlord, shall in no event exceed the amount of such equity and no other assets of Landlord (or any partners, stockholders or officers of Landlord) shall be subject to levy, execution or other procedures for satisfaction of Tenant's remedies. In the event Landlord transfers this Lease, other than as security for a mortgage, ground lease or deed of trust, Landlord (and, in case of any subsequent transfers or conveyance, than grantor) shall, upon such transfer and acceptance by the transferee be relieved from all liability and obligation hereunder arising after such transfer, including any liability to Tenant for any security deposit under this Lease. 26. NOTICES: All notices, demands, request, approvals, consents or other instrument required or desired to be given hereunder by either party to the other shall be personally delivered or sent by U.S. certified or registered mail, return receipt requested, first class postage prepaid, addressed as follows: If to Landlord: Botzler Emery Associates Guilford Ten Limited Partnership, c/o Pledge, 9570 Berger Road, Columbia, MD 21046 Attn: Larry Ohler, with a copy to Aid Association for Lutherans, 4321 N. Ballard Road, Appleton, WI 54919. If to Tenant: PATS, Inc., 9570 Berger Road, Columbia, MD 21046. 11 27. ESTOPPEL CERTIFICATES: Tenant agrees from time to time, within five (5) business days of request from Landlord, to execute, acknowledge and deliver to Landlord or to such other person(s) as Landlord may indicate a statement in writing certifying that Tenant is in possession of the Premises and currently paying rent at the then-applicable Minimum Rent and that this Lease is in full force and effect, and containing such other information as may be required. 28. SUCCESSOR AND ASSIGNS: This Lease and the covenants and conditions herein contained shall inure to the benefit of and be binding upon Landlord, its successors and assigns, and shall inure to the benefit of and be binding upon Tenant, its heirs, distributees, personal representatives, successors and assigns, provided that as to the assign of Tenant, the benefits shall inure to such assigns only if the assignment has been consented to in writing by Landlord. 29. ENTIRE AGREEMENT: This Lease contains the entire agreement of the parties in regard to the Premises. There are no oral agreements existing between them. 30. WAIVER OF JURY TRIAL: Tenant hereby waives all right to trial by jury in any claim, action, proceeding or counterclaim by either Landlord or Tenant against the other or any matters arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant and/or Tenant's use of occupancy of the Premises. 31. OTHER PROVISIONS: This Lease shall be construed and governed by the law of the State of Maryland. No waiver of any breach of any covenant, condition or agreement contained herein shall operate as a waiver of the covenant, condition or agreement itself, or of any subsequent breach thereof. If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant and condition of this Lease shall be valid and enforced to the fullest extent permitted by law. Except as specifically provided for herein, Tenant agrees to accept the Premises in its "as is" condition. 32. JURISDICTION: Tenant hereby consents to the exercise of personal jurisdiction over it by any federal or state court in the State of Maryland and consents to the laying of venue in any jurisdiction or locality within the State of Maryland. In addition to (and not in lieu of) the agents designated under applicable law for purposes of service of process, Tenant appoints Larry D. Ohler having an address at 9570 Berger Road, Columbia, MD 21046 as Tenant's agent for receipt of service of process on Tenant's behalf in connection with any suit, writ, attachment, execution or discovery or supplementary proceedings 12 in connection with the enforcement of this Lease. Service on said agent shall be effected by any means permitted under applicable law or by the court in which the action is filed, or, at Landlord's option, by mailing process, postage prepaid, by certified mail, return receipt requested, either to Tenant's agent at the foregoing address or to Tenant at the address set forth in Section 2c of this Lease. Service shall be deemed effective upon receipt. The Tenant may designate a change of address by written notice to the other given by certified mail, return receipt requested, at least ten (10) days before such change of address is to become effective. 33. LANDLORD'S RIGHT TO CURE: If Tenant shall fail to perform any covenant or duty required of it by this Lease or by law, Landlord shall, after notice to Tenant and expiration of the applicable cure period, have the right (but not the duty) to enter the Premises, if necessary, to perform the same without notice, but the reasonable cost thereof shall be deemed to be additional rent, and shall give the Landlord the same rights and remedies as though the additional rent were part of the monthly rent due the Landlord under this Lease. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal as of the day and year first above written. WITNESS PLEDGC PARTNERSHIP /s/ Edward Tindall /s/ Charles L. Parrington - ----------------------------------- ----------------------------------- Edward Tindall Charles L. Parrington General Partner ("Landlord") PATS, INC. /s/ L. Roland Sturm By: /s/ Harvey O. Patrick - ----------------------------------- -------------------------------- L. Roland Sturm Harvey O. Patrick ("Tenant") 13 AMENDMENT OF LEASE THIS AMENDMENT is made as of this 1st day of July, 1997, by and between PLEDGC, a Maryland general partnership, as General Partner of Botzler-Emory Associates Guilford Ten Limited Partnership, a Maryland limited partnership (hereinafter referred to as "Landlord"), and PATS, INC., a Maryland corporation (hereinafter referred to as "Tenant"). WHEREAS, Landlord and Tenant entered into a lease dated June 1, 1992, regarding the premises described as 9570 Berger Road, Columbia, Howard County, Maryland containing 65,923 square feet of space, more or less (the "Property"); and WHEREAS, the parties hereto desire to amend the Lease as hereinafter set forth. NOW, THEREFORE, WITNESSETH for good and valuable consideration, the mutual receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Paragraph 4 of the Lease is amended as follows: RENT. Tenant shall pay to Landlord minimum rent ("Rent") at the rate of Four Hundred Five Thousand Dollars ($405,000.00) per annum, payable in equal monthly installments of Thirty-Three Thousand Seven Hundred Fifty Dollars ($33,750.00) in advance and without demand beginning on the first day of July 1997 and continuing on the first day of each month thereafter subject to the adjustments set forth herein. 2. Paragraph 5 of the Lease is amended as follows: RENT ADJUSTMENT. The Rent shall be adjusted annually beginning on July 1, 1998 and on the first day of July of each succeeding year during the term of the Lease to a sum obtained by multiplying the rent for the year beginning July 1, 1997 by a fraction, the numerator of which shall be the amount of the CONSUMER'S PRICE INDEX for Baltimore, Maryland (the "Index") for the preceding December (or the most recently available monthly Index on July 1 of each 1 year) and the denominator of which shall be such Index for July 1, 1997; provided, however, that in no event shall the annual rent increase be less than three percent (3%) annually each July 1, beginning July 1, 1998 during the term hereof. As used herein, the term "Consumer's Price Index" means the Consumer's Price Index for "all items" now published by the Bureau of Labor statistics of the United States Department of Labor, or if such publication is discontinued, then the most closely comparable data published by such agency or another agency of the United States Government. 3. Paragraph 2 of the Lease is amended to extend the Lease term as follows: The term of the Lease shall end on June 30, 2007. 4. The following provision is added to the Lease: RIGHT OF FIRST REFUSAL. If, at any time after the date of this Amendment, the Landlord shall desire to sell the property or any part thereof, or shall receive from a third party a bona fide offer to purchase the property, or any part thereof, the Landlord, before making or accepting the offer, as the case may be, shall send to the Tenant written notification from the Landlord of the Landlord's intention to make or accept the offer unless the Tenant agrees to purchase the property for the greater of Three Million Three Hundred Thousand Dollars ($3,300,000.00) or the fair market value of the property. The Tenant shall have twenty (20) days from the date of the Notice to notify Landlord in writing of Tenant's election to exercise its right to purchase the property. If the Tenant exercises its right to purchase the property, the parties shall select by mutual agreement an appraiser to establish the fair market value of the property. If the parties are unable to agree on the appraiser to be used, each party shall select their own appraiser (and be responsible for their respective costs thereof) and the average of the two appraisers shall be deemed the fair market value for establishing the purchase price by the Tenant. Tenant shall have ten (10) days from final determination of the fair market value to advise Landlord in writing whether Tenant intends to proceed to exercise Tenant's right of that refusal. Settlement of the purchase by the Tenant shall occur within sixty (60) days after the date of the Tenant's notice following the final determination of fair market value. 2 If the Tenant does not elect to exercise its right of first refusal in the manner set forth above, then the Landlord shall be free for a period of ninety (90) days from the expiration of the ten (10) day notice period after the determination of fair market value to sell the property free and clear of the right of first refusal. In the event that the property is not sold to a third party within the ninety (90) day period, then any further sale of the property must first be submitted to the Tenant in accordance with the provisions of this paragraph. The Tenant's right of first refusal shall be subordinate and junior to the legal operation and effect of any present or future mortgage or Deed of Trust which now or hereafter becomes a lien on the property. Anything in this Agreement to the contrary notwithstanding, this right of first refusal and the rights and obligations contained herein shall automatically expire if not exercised on or before June 30, 2007. 5. In all other respects, the Lease shall remain in full force and effect. 6. This Amendment shall be binding upon the parties hereto and their respective successors and assigns. 7. This Amendment shall be interpreted and construed in accordance with the laws of the State of Maryland. WITNESS the hands and seals of the parties hereto as of the day and year first above written. ATTEST/WITNESS: LANDLORD: BOTZLER-EMORY ASSOCIATES GUILFORD TEN LIMITED PARTNERSHIP By: PLEDGC, a Maryland General Partnership, General Partner /s/ Harry S. Jackson By: Edward G. Tindall (SEAL) - -------------------------------- ------------------------------- Harry S. Jackson Edward G. Tindall 3 ATTEST/WITNESS: TENANT: PATS, INC. /s/ Joan Lewis By: /s/ Harvey O. Patrick (SEAL) - -------------------------------- ------------------------------- 4 EX-10.12 46 EXHIBIT 10.12 SECOND AMENDMENT TO OFFICE LEASE THIS AGREEMENT made this 15th day of December, 1993, by and between CONTINENTAL DEVELOPMENT CORPORATION, a California corporation, hereinafter referred to as ("Lessor"), and TRI STAR ELECTRONICS INTERNATIONAL, INC., an Ohio corporation, and CORY COMPONENTS, INC., a California corporation, hereinafter referred to collectively as ("Lessee"). W I T N E S S E T H WHEREAS, Lessor and Lessee entered into that certain Office Lease ("Lease"), dated September 15, 1989, whereby Lessor leased to Lessee and Lessee hired from Lessor a certain office building, commonly known as 2201 Rosecrans Avenue, El Segundo, California, together with all improvements therein and appurtenances thereto; and, WHEREAS, Lessee is the successor in interest of such Lease by assignment from the original Lessee, Tri Star Electronics, Inc., by assignment dated September 30, 1991; and, WHEREAS, Lessor and Lessee are desirous of amending said Lease by this Second Amendment to Office Lease in the manner set forth below. NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions contained herein, and of other good and valuable consideration, it is agreed as follows: 1. LATE CHARGES Paragraph 13.4 Late Charges is amended by deleting "ten (10) days" in line 5 of such paragraph and adding in its place "one (1) day". 2. EFFECTIVE DATE This amendment shall take effect as of May 1, 1994, and shall continue in effect for the duration of the Lease. 3. GENERAL TERMS All of the terms, covenants, conditions, provisions, and agreements of the Lease, except as amended herein, shall remain in full force and effect and shall apply to the premises described in Paragraph 1 of this Amendment. LESSOR: LESSEE: CONTINENTAL DEVELOPMENT TRI STAR ELECTRONICS, CORPORATION, INTERNATIONAL, INC., a California corporation an Ohio corporation By: /s/ Richard C. Lundquist By: /s/ R G MacDonald ------------------------------- ------------------------------- Richard C. Lundquist Its: President President ------------------------------ By: /s/ Leonard E. Blakesley, Jr. By: /s/ Robert Rank ------------------------------- ------------------------------- Leonard E. Blakesley, Jr. Its: CFO Secretary ------------------------------- CORY COMPONENTS, INC. a California corporation By: /s/ R G MacDonald ------------------------------- Its: C.E.O. ------------------------------ By: ------------------------------- Its: ------------------------------ STANDARD INDUSTRIAL LEASE - NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION [LOGO] 1. PARTIES. This Lease, dated, for reference purposes only, September 15, 1989, is made by and between Continental Development Corporation, a California corporation (herein called "Lessor") and Tri-Star Electronics, Inc., a California corporation and Cory Components Incorporated, a California corporation (herein called "Lessee"). 2. PREMISES. Lessor hereby leases to Lessee and Lessee lease from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Los Angeles State of California commonly known as 2201 Rosecrans Avenue, El Segundo and as described in the Legal Description attached as Exhibit A. Said real property including the land and all improvements therein, is herein called "the Premises". 3. TERM. 3.1 TERM. The term of this lease shall be for ten years commencing on March 1, 1990 and ending on February 29, 2000 unless sooner terminated pursuant to any provision hereof. 3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent until possession of the Premises is tendered to Lessee. 3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $58,536, in advance, on the 1 day of each month of the term hereof. Lessee shall pay Lessor upon the execution hereof $58,536 as rent for the first month of occupancy. At the commencement of the 31st, 61st and 91st months of the lease, the base rent shall be adjusted as provided in Section 53 of the Addendum. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $60,000 as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provisions of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in a amount sufficient to restore said deposit to the full amount herein above stated and Lessee's failure to do so shall be a material breach of this Lease. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security deposit so that the amount of security deposit held by Lessor shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor, shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. USE. 6.1 USE. The Premises shall be used and occupied only for light manufacturing and assembly of electronic components and offices incidental to this use or any other use which is reasonably comparable and for no other purpose. 6.2 COMPLIANCE WITH LAW. (a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not give to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2 (a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be there more than one tenant in the building containing the Premises, shall tend to disturb such other tenants. 6.3 CONDITIONS OF PREMISES. Lessor warrants for a period of one (1) year all construction performed pursuant to the [COPY RAN OFF PAGE] (a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature or the violation, to promptly, at Lessor's sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was the owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. MAINTENANCE, REPAIRS AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and repair the Premises and every part thereof, structural and non structural, (whether or not such portion of the Premises requiring repair, or the means of repairing the same are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical, lighting facilities and equipment within the Premises, fixtures, walls (interior and exterior), foundations, ceilings, roofs (interior and exterior), floors, windows, doors, plate glass and skylights located within the Premises, and all landscaping, driveways, parking lots, fences and signs located on the Premises and sidewalks and parkways adjacent to the Premises. See Addendum paragraph 49 for additional terms. 7.2 SURRENDER. On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as when received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned Initials: [illegible] ----------- NET [illegible] ----------- by the installation or removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the premises in good operating condition. 7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations under this Paragraph 7, or under any other paragraph of this Lease, Lessor may at its option (but shall not be required to) enter upon the Premises after ten (10) days prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the same in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall become due and payable as additional rental to Lessor together with Lessee's next rental installment. 7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9 (relating to destruction of the Premises) and under Paragraph 14 (relating to condemnation of the Premises), it is intended by the parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises nor the building located thereon nor the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of any statute now or hereinafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the premises in good, condition and repair. 7.5 ALTERATIONS AND ADDITIONS. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, except for nonstructural alterations not exceeding $10,000 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $10,000 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.5 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. (d) Unless Lessor requires their removal, as set forth in Paragraph 7.5(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.5(d). Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2. 8. INSURANCE INDEMNITY. 8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring party" shall mean the party who has the obligation to obtain the Property Insurance required hereunder. The insuring party shall be designated in Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall also maintain the liability insurance described in paragraph 8.2 hereof, in addition to, and not in lieu of, the insurance required to be maintained by Lessee under said paragraph 8.2, but Lessor shall not be required to name Lessee as an additional insured on such policy. Whether the insuring party is the Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the cost of all insurance required hereunder. If Lessor is the insuring party Lessee shall, within ten (10) days following demand by Lessor, reimburse Lessor for the cost of the insurance so obtained. 8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and keep in force during the term of this Lease a policy of Combined Single Limit, Bodily Injury and Property Damage insurance insuring Lessor and Lessee against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be a combined single limit policy in an amount not less than $1,000,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.3 PROPERTY INSURANCE. (a) The insuring party shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises, in the amount of the full replacement value thereof, as the same may exist from time to time, which replacement value is now $6,000,000, but in no event less than the total amount required by lenders having liens on the Premises, against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises), and special extended perils ("all risk" as such term is used in the insurance industry). Said insurance shall provide for payment of loss thereunder to Lessor or to the holders of mortgages or deeds of trust on the Premises. The insuring party shall, in addition, obtain and keep in force during the term of this Lease a policy of rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. A stipulated value or agreed amount endorsement deleting the coinsurance provision of the policy shall be procured with said insurance as well as an automatic increase in insurance endorsement causing the increase in annual property insurance coverage by 2% per quarter. If the insuring party shall fail to procure and maintain said insurance the other party may, but shall not be required to, procure and maintain the same, but at the expense of Lessee. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount. (b) If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, then Lessee shall pay for any increase in the property insurance of such other building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (c) If the Lessor is the insuring party the Lessor will not insure Lessee's fixtures, equipment or tenant improvements unless the tenant improvements have become a part of the Premises under paragraph 7 hereof. But if Lessee is the insuring party the Lessee shall insure its fixtures, equipment and tenant improvements. 8.4 INSURANCE POLICIES. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide". The insuring party shall deliver to the other party copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses as required by this paragraph 8. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Lessor. If Lessee is the insuring party Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3. If Lessee does or permits to be done anything which shall increase the cost of the insurance policies referred to in Paragraph 8.3, then Lessee shall forthwith upon Lessor's demand reimburse Lessor for any additional premiums attributable to any act or omission or operation of Lessee causing such increase in the cost of insurance if Lessor is the insuring party, and if the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall deliver to Lessee a written statement setting forth the amount of any such insurance cost increase and showing in reasonable detail the manner in which it has been computed. 8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against under paragraph 8.3, which perils occur in, on or about Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located. Initials: [illegible] ----------- NET -2- [illegible] ----------- 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the then replacement cost of the Premises. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is less than 50% of the then replacement cost of such building as a whole. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the then replacement cost of the Premises. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50% or more of the then replacement cost of such building as a whole. (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. 9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provisions of paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements unless the same have become a part of the Premises pursuant to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall continue in full force and effect. Notwithstanding the above, if the Lessee is the insuring party, and if the insurance proceeds received by Lessor are not sufficient to effect such repair, Lessor shall give notice to Lessee of the amount required in addition to the insurance proceeds to effect such repair. Lessee shall contribute the required amount to Lessor within ten days after Lessee has received notice from Lessor of the shortage in the insurance. When Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as soon as reasonably possible and this Lease shall continue in full force and effect. Lessee shall in no event have any right to reimbursement for any such amounts so contributed. 9.3 PARTIAL DAMAGE - UNINSURED LOSS. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be canceled and terminated as of the date of the occurrence of such damage. 9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction. 9.5 DAMAGE NEAR END OF TERM. (a) If at any time during the last one (1) year of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accure, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Lessee shall pay to Lessor the real property tax, as defined in paragraph 10.2, applicable to the Premises during the term of this Lease. All such payments shall be made at least ten (10) days prior to the delinquency date of such payment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes paid by Lessee shall cover any period of time prior to or after the expiration of the term hereof, Lessee's share of such taxes shall be equitably prorated by Lessor, to cover only the period of time within the tax fiscal year during which this Lease shall be in effect, and Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee's next rent installment together with interest at the maximum rate then allowable by law. 10.2 DEFINITION OF "REAL PROPERTY TAX" . As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Premises. The term "real property tax" shall also include any tax, fee, levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee, levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax," or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Premises or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.4 PERSONAL PROPERTY TAXES. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of all charges jointly metered with other premises. Initials: [illegible] ----------- NET -3- [illegible] ----------- 13. DEFAULT; REMEDIES. 13.1 DEFAULTS. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (d) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1 (d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false. 13.2 REMEDIES. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 4.5% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary. 13.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums. 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premises which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within twenty (20) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. BROKER'S FEE. (a) Upon execution of this Lease by both parties, Lessor shall pay to Leonard & Ohren Licensed real estate broker(s), a fee as set forth in a separate agreement between Lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $219,931.20, for brokerage services rendered by said broker(s) to Lessor in this transaction. (c) Lessor agrees to pay said fee not only on behalf of Lessor but also on behalf of any person, corporation, association, or other entity having an ownership interest in said real property or any part thereof, when such fee is due hereunder. Any transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Said broker shall be a third party beneficiary of the provisions of this Paragraph 15. 16. ESTOPPEL CERTIFICATE (a) Either party hereto shall at any time upon not less than twenty (20) days' prior written notice from the other party execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to such party's knowledge, any uncured defaults on the part of the other party hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At either party's option, the failure to deliver such statement within such time shall be a material breach of this Lease or shall be Initials: [illegible] ----------- -4- LEB ----------- conclusive upon such party (i) that this Lease is in full force and effect, without modification except as may be represented by the party, (ii) that there are no uncured defaults in the other party's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered a default under this Lease. (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. TIME OF ESSENCE. Time is of the essence. 21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent. 22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. NOTICES. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver the other a "short form" memorandum of this Lease for recording purposes. 26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any, granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting assignment of subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located. 30. SUBORDINATION. (a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed or trust of ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within twenty (20) days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. ATTORNEY'S FEES. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times and with reasonable notice for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's prior written consent. 35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be unreasonably withheld. 37. GUARANTOR. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises. 39. OPTIONS. 39.1 DEFINITION. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (3) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. Initials: [illegible] ----------- -5- LEB ----------- 39.2 OPTIONS PERSONAL. The Options herein granted to Lessee are not assignable separate and apart from this Lease. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge has become payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the subject Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion , or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the defaults are cured. 40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a larger building or group of buildings then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this Lease by Lessee. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties. 42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. INSURING PARTY. The insuring party under this lease shall be the Lessor. 47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 48 through 54 which constitutes a part of this Lease. See attached Exhibit A - Legal Description Exhibit B - Building Floor Plan Exhibit C - Work Letter LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES. Executed at El Segundo, California Continental Development Corporation ------------------------------- ------------------------------------- on By /s/ Richard C. Lundquist --------------------------------- ------------------------------------ Richard C. Lundquist, President Address 2041 Rosecrans Avenue, Suite 265 By /s/ Leonard E. Blakesley, Jr. -------------------------------- ------------------------------------ Leonard E. Blakesley, Jr., Secretary - --------------------------------------- "LESSOR" (Corporate Seal) Executed at El Segundo, California Tri-Star Electronics, Inc. and ---------------------------- Cory Components Incorporated ------------------------------------- on By /s/ Neal J. Castleman ------------------------------------- ---------------------------------- Neal J. Castleman, President of Tri-Star Electronics Address 2201 Rosecrans Avenue By /s/ Neal J. Castleman -------------------------------- ---------------------------------- Neal J. Castleman, Chairman of Cory Components - ---------------------------------------- "LESSEE" (Corporate seal) For these forms write or call the American Industrial Real Estate Association, 345 South Figueroa St., M-1, Los Angeles, CA 90071 (213)687-8777 - -C- 1980--By American Industrial Real Estate Association. All rights reserved. No part of these words may be reproduced in any form without permission in writing. PARCEL A: The surface and all rights above the subsurface and that portion of the subsurface lying above a depth of 500.00 feet measured vertically from the surface of that portion of Parcel 2, in the city of El Segundo, in the county of Los Angeles, state of California, as shown on a record of survey filed in Book 77 pages 51 and 52 of Record of Surveys, in the office of the County Recorder of said county, described as follows: Beginning at the intersection of the westerly line of said Parcel 2, with a line that is parallel with and distant northerly 30.00 feet measured at right angles from the most southerly line of said Parcel 2; thence along said parallel line, South 89DEG.57'34" East 250.00 feet to the easterly line of said Parcel 2; thence along said easterly line, North 0DEG.00'04" West 405.00 feet to the westerly terminus of that certain course in the southerly boundary of said Parcel 2, shown on the map of said Record of Survey as having a bearing and length of North 89DEG.57'34" West 400.00 feet; thence along the westerly prolongation of said last-mentioned certain course, North 89DEG57'34" West 250.00 feet to the westerly line of said Parcel 2; thence along said westerly line South 0DEG.00'04" East 405.00 feet to the point of beginning. Except from the southerly 13.5 feet of said land, all oil, gas, asphaltum and other hydrocarbons and other minerals that may be produced from said land, provided, however, that the surface of said property shall never be used for the exploration, development, extraction, removal or storage of said oil, gas, asphaltum or other hydrocarbons and other minerals and provided further that the exercise of such excepted and reserved rights shall be conducted in such a manner as not to interfere with or endanger the use of the surface of said property, as reserved by Standard Oil Company of California, a corporation, in deed recorded April 22, 1939, in Book D-441 Page 942, Official Records. Lessor reserves unto itself, its successors, assigns and designated lessees, a non-exclusive right of vehicular and pedestrian access to, upon and over the westerly 22.00 feet of the above described land. PARCEL B: A non-exclusive easement appurtenant to said Parcel A for vehicular and pedestrian access to and from said Parcel A in, to, upon and over those portions of Parcels 1, 2 and 3, in the city of El Segundo, Count of Los Angeles, state of California, as shown on Parcel Map No. 8721 filed in Book 107, Page 2 of Parcel Maps in the office of the County Recorder of said county, TOGETHER with that portion of the southeast quarter of Section 18, T. 3 S., R. 14W., in said city, county and state, as shown on map of subdivision of part of the Sausal Redondo Rancho, filed in Superior Court Case No. 11629 of the state of California in and for the county of Los Angeles, included within a strip of land 38.00 feet wide, lying 16.00 feet westerly and 22.00 feet easterly of the easterly line of said Parcels 1, 2 and 3; excepting therefrom that portion of said 38.00-foot-wide strip of land lying within said Parcel A. Said Parcel B lies within, and is a portion of, the private street known as Continental Way. EXHIBIT "A" [MAP/BLUEPRINT] PARKING STRUCTURE ----------------- 2201 ROSECRANS AVE. TWO FLOORS 81,300 sq. ft. SEPT. 19, 1989 EXHIBIT B WORK LETTER TO STANDARD OFFICE LEASE Dated: September 19, 1989 By and between: Continental Development Corporation, Lessor, and Tri-Star Electronics, Inc., Lessee Except for the work to be performed according to Lessee's plans and specifications (Specs), the tenant improvements in the Premises shall be constructed in accordance with Lessor's building standard improvements using building standard materials at Lessor's cost. All work to be performed in accordance with Lessee's Specs shall be performed by Lessors at Lessee's expense. In addition to the cost of Lessee's work performed in accordance with Lessee's Specs, Lessee shall pay Lessor 10% of the total cost of such work as administrative overhead and an additional 5% of the sum of such work and administrative overhead as a reasonable profit. 1. Partitions All existing partitions except bathrooms, stairwells and air chambers to be removed. All new partitions installed in accordance with the Specs shall be at the sole cost of the Lessee. 2. Wall Surfaces All bathrooms, stairwells, air chambers and perimeter walls to be painted with Zolatone paint of Lessee's choice. Patch as necessary. 3. Wall Coverings N/A 4. Carpeting & Flooring Lessor shall install: (1) 7,000 square feet of Stonehard Composition flooring in a location to be specified by Lessee in the Specs; (2) 10,000 square feet of carpet, the cost of which shall not exceed $20/yard installed (inclusive of padding and other materials necessary to install) on the 2nd floor of the Premises; Lessee shall specify location; (3) building standard vinyl tile with graphic motif using uncut tiles throughout balance of the 1st and 2nd floors of the Premises; (4) building standard vinyl cove baseboard on perimeter, bathroom, stairwell and air chamber walls by Lessor. All other vinyl cove baseboard at expense of Lessee. 5. Doors Remove all doors coincidental with the demolition of interior partitions described above in item 1. All existing doors that are not removed (bathrooms, janitor closets, stairwells, entrance and exit doors) to be refurbished. All new doors installed in new partitions according to Lessee's Specs shall be at Lessee's expense. 6. Electrical and Telephone Outlets All existing perimeter wall outlets shall remain as is. Any additional such outlets shall be installed per Code. All outlets in all removed partitions shall be disconnected at the junction box by Lessor. Any and all new outlets and all electrical power required by Lessee for the installation of Lessees pre-fab type office systems, and industrial equipment shall be constructed by Lessor in a "roughed-out" condition ready for final hook-up to said office systems and industrial equipment at Lessee's expense. 7. Ceiling To be removed and replaced with new 2'x2' acoustic tile building standard ceiling throughout. Drywall ceilings shall be repainted. Any reconfiguration required by Lessee's Specs shall be at Lessee's expense (including diagonal orientation). As Lessee does not require a ceiling for the 1st floor, Lessor's savings therefrom shall be applied against Lessee's cost to adequately ventilate and light the 1st floor area and against Lessee's remodel of all the building restrooms. 8. Lighting Furnish and install new fixtures and lenses throughout to achieve a building standard open area reflected ceiling plan which shall be one 2'x2' fixture per code requirement. Any additional fixtures or fixtures of a grade higher than building standard required by Lessee's Specs shall be at Lessee's expense, and Lessee shall receive a credit for the standard fixtures not used. 9. Heating and Air Conditioning Ducts Registers and grills to be refurbished to like-new condition or replaced with new. Reinstall to pattern per building standard open area reflected ceiling plan. Any additional ducting or zoning required by Lessee's Specs shall be at Lessee's expense. 10. Miscellaneous Lessor shall construct or install as may be required by the Specs a lunch room lineup with required utility connections and mechanical work; a nitrogen tank (all above ground); a tank enclosure (approximately 8'x10') installed in the parking structure for the building all at the sole expense of Lessee. Lessor to provide watertight roof and new visual block screen at roof; repaint entry loading ramp and entrance; furnish and install a roll-up utility door in exterior wall approximately 9' wide x 10' high. 11. Plumbing Detail type cleaning throughout all bathrooms. Convert one men's facility to a women's facility, changing urinals to water closets, and bring bathrooms into compliance with Title 24 Accessibility Requirements, (handicapped) including changing fixtures as necessary for compliance. Replacement of all faucets, knobs and any cracked or damaged fixtures and tile. Repaint all metal partitions. Add one executive building standard bathroom including shower stall. The existing fire sprinkler system shall be modified to comply with the applicable Building and Fire Safety Codes. Any reconfiguration required by Lessee's Specs shall at Lessee's expense. Initials: [illegible] ----------- FULL SERVICE - GROSS [illegible] ----------- EXHIBIT C PAGE 1 OF 2 PAGES 12. Entrance Doors N/A 13. Completion of Improvements At the Lessee's expense, Lessor shall construct and complete the improvements to the Premises in accordance with the Specs provided to Lessor by Lessee. Said Specs are to be provided to Lessor by November 1, 1989, in order to permit Lessor sufficient time to complete such improvements by March 1, 1990. These improvements shall be of building standard type materials readily available in the area in which the Premises are located and shall require no unreasonable lead times for procurement. Notwithstanding the provisions of paragraph 3.2 of the Lease, if Lessee fails to provide said Specs by such date and such failure results in the Lessor's inability to complete said improvements by March 1, 1990 without extraordinary efforts, such events shall not cause a delay in the commencement of the Lease nor a delay in the commencement of the accrual of rent. 16. Completion 16.1 Lessor shall obtain a building permit to construct the improvements as soon as possible. 16.2 Lessor shall complete the construction of the improvements as soon as reasonably possible after the obtaining of necessary building permits. 16.3 The term "Completion," as used in this Work Letter, is hereby defined to mean the date the building department of the municipality having jurisdiction of the Premises shall have made a final inspection of the improvements and authorized a final release of restrictions on the use of public utilities in connection therewith and the same are in a broom-clean condition. 16.4 Lessor shall use its best efforts to achieve Completion of the Improvements on or before the Commencement Date set forth in paragraph 1.5 of the Basic Lease Provisions or within one hundred eighty (180) days after Lessor obtains the building permit from the applicable building department, whichever is later. 16.5 In the event that the improvements or any portion thereof have not reached Completion by the Commencement Date, this Lease shall not be invalid, but rather Lessor shall complete the same as soon thereafter as is possible and Lessor shall not be liable to Lessee for damages in any respect whatsoever. 16.6 If Lessor shall be delayed at any time in the progress of the construction of the improvements or any portion thereof by extra work, changes in construction ordered by Lessee, or by strikes, lockouts, fire, delay in transportation, unavoidable casualties, rain or weather conditions, governmental procedures or delay, or by any other cause beyond Lessor's control, then the Commercial Date established in paragraph 1.5 of the Lease shall be extended by the period of such delay. 17. Term Upon Completion of the improvements as defined in paragraph 16.3, above, Lessor and Lessee shall execute an amendment to the Lease setting forth the date of Tender of Possession as defined in paragraph 3.2.1 or the Lease or of actual taking of possession, whichever first occurs, as the Commencement Date of this Lease. 18. Work Done by Lessee Any work done by Lessee shall be done only with Lessor's prior written consent and in conformity with a valid building permit and all applicable rules, regulations, laws and ordinances, and be done in a good and workmanlike manner with good and sufficient materials. All work shall be done only with union labor and only by contractors approved by Lessor, it being understood that all plumbing, mechanical, electrical wiring and ceiling work are to be done only by contractors designated by Lessor. 19. Taking of Possession of Premises Lessor shall notify Lessee of the Estimated Completion Date at least ten (10) days before said date. Lessee shall thereafter have the right to enter the Premises to commence construction of any improvements Lessee is to construct and to equip and fixturize the Premises, as long as such entry does not interfere with Lessor's work. Lessee shall take possession of the Premises upon the tender thereof as provided in paragraph 3.2.1 of the Lease to which this Work Letter is attached. Any entry by Lessee of the Premises under this paragraph shall be under all of the terms and provisions of the Lease to which this Work Letter is attached. 20. Acceptance of Premises Lessee shall notify Lessor in writing of any items that Lessee deems incomplete or incorrect in order for the Premises to be acceptable to Lessee within ten (10) days following Tender of Possession as set forth in paragraph 3.2.1 of the Lease to which this Work Letter is attached. Lessee shall be deemed to have accepted the Premises and approved construction if Lessee does not deliver such a list to Lessor within said number of days. 21. Payment Lessee shall pay Lessor for work done hereunder on a monthly basis, within 10 days of the presentation of the invoice. Failure to pay within said period shall result in a cessation of work by Lessor but shall not alter the commencement date of the Lease or the accrual of rent. Initials: ----------- FULL SERVICE - GROSS [illegible] ----------- EXHIBIT C PAGE 2 OF 2 PAGES LEASE ADDENDUM This Addendum is dated this 15th day of September 1989 and shall be operative as of this date unless otherwise stated herein. It is intended to supplement that certain lease by and between Continental Development Corporation (Lessor) and Tri-Star Electronics, Inc., a California corporation, and Cory Components, Incorporated, a California corporation, (Lessee) dated the 15th day of September 1989 (the Lease). Lessor and Lessee hereby agree to the matters hereinafter set forth. This Addendum shall be attached to the Lease and shall incorporate all relevant terms of the Lease as if set forth verbatim. If there are any conflicts between this Addendum and any provisions of the Lease, the Addendum shall be controlling as to matters specifically set forth herein. As to matters not specifically set forth herein, the Lease shall be controlling. The following paragraphs are hereby added to the Lease as if set forth therein: 48. HAZARDOUS SUBSTANCES 48.1 Definitions. The term "Hazardous Substances," as used in this Lease, shall include, without limitation, flammables, explosives, radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, petroleum and petroleum products, and any material or substance which is (i) defined as a "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste" under Sections 25115, 25117 or 15122.7, or listed pursuant to Section 25140, of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a "hazardous substance" under Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance Account Act), (iii) defined as a "hazardous material," "hazardous substance," or "hazardous waste" under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory), (iv) defined as a "hazardous substance" under Section 25281 of the California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substance), (v) petroleum, (vi) asbestos, (vii) listed under Article 9 or defined as hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20, (viii) designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act 33 U.S.C. 1317, (ix) defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. 42 U.S.C. 6903, or (x) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. and substances declared to be hazardous or toxic under any law or regulations now or hereafter enacted or promulgated by any governmental authority. 48.2 Lessee's Restrictions. Lessee shall not cause or permit to occur: (a) Any violation of any federal, state, or local law, ordinance, or regulations now or hereafter enacted, related to environmental conditions on, under, or about the Premises, or arising from Lessee's use or occupancy of the Premises, including, but not limited to, soil and ground water conditions; or 1 (b) In the event Lessee proposes to alter in any manner its current use, generation, release. manufacture, refining, production, processing, storage, or disposal of any Hazardous Substance on, under, or about the Premises, or the transportation to or from the Premises of any Hazardous Substance, Lessee shall first obtain written consent of Lessor. Lessee shall remove all Hazardous Substances generated by Lessee's activities on the Premises in a manner which complies with all Laws. 48.3 Environmental Clean-up. (a) Lessee shall, at Lessee's own expense, comply with all laws regulating the use, generation, storage, transportation, or disposal of Hazardous Substances (Laws). (b) Lessee shall, at Lessee's own expense, make all submissions to, provide all information required by, and comply with all requirements of all governmental authorities (the "Authorities") under the Laws. (c) Lessee shall provide Lessor, at least annually, with copies of all required licenses, permits, or other forms of compliance with all Laws as are required by Authorities. (d) Should any Authority or any third party demand that a cleanup plan be prepared and that a clean-up be undertaken because of any deposit, spill, discharge, or other release of Hazardous Substances that occurs during the term of this Lease, at or from the Premises, or which arises at any time from Lessee's use or occupancy of the Premises, then Lessee shall, at Lessee's own expense, prepare and submit the required plans and all related bonds and other financial assurances; and Lessee shall carry out all such cleanup plans. (e) Lessee shall promptly provide all information regarding the use, generation, storage, transportation, or disposal of Hazardous Substances that is reasonably requested by Owner. If Lessee fails to fulfill any duty imposed under this paragraph within a reasonable time, Lessor may do so; and in such case, Lessee shall cooperate with Lessor in order to prepare all documents Lessor deems necessary or appropriate to determine the applicability of the Laws to the Premises and Lessee's use thereof, and for compliance therewith, and Lessee shall execute all documents promptly upon Lessor's request. No such action by Lessor and no attempt made by Lessor to mitigate damages under any Law shall constitute a waiver of any of Lessee's obligations under this Paragraph. (f) Lessee shall pay the full cost of any clean-up work performed on or about the Premises as required by any such governmental authority in order to remove, neutralize or otherwise treat materials of any type whatsoever directly or indirectly placed by Lessee or its agents, employees or contractors on or about the Premises or the land under or about the Premises. (g) At the end of the Lease term or any extension, Lessee shall surrender the Premises in a good and clean condition, normal wear and tear excepted, ready for occupancy by any subsequent tenant. Should Lessee fail to so surrender at the end of such term then and in that event Lessee shall be deemed a Holdover pursuant to the terms and conditions of Paragraph 26 of the Lease. (h) Lessee's obligations and liabilities under this Paragraph shall survive the expiration of this Lease. 48.4 Disclosure of Violations. Lessee shall, within five (5) days of the occurrence thereof, notify Lessor in writing of any violation, citation, report, notice, or any other form of communication from any 2 governmental authority regarding non-compliance with any and all Laws. Furthermore, as a condition precedent to the effectiveness of this Lease, Lessee shall provide to Lessor, at least five (5) days prior to the commencement hereof, a written certification, signed by an authorized officer of Lessee, setting forth, in detail, Lessee's record with regard to compliance with all Laws. 48.5 Lessee's Indemnity. (a) Lessee shall release, indemnify, defend, protect and hold harmless Lessor, the manager of the property, and their respective officers, directors, beneficiaries, shareholders, partners, agents, and employees from all fines, suits, procedures, claims, and actions of every kind from or by any third party or governmental authority, and all costs associated therewith (including attorneys' and consultants' fees and expenses) arising out of or in any way connected with any residue, deposit, spill, discharge, or other release of Hazardous Substances that occurs during the term of this Lease, at or from the Premises, or from Lessee's failure to provide all information, make all submissions, and take all steps required by all Authorities under the Laws and all other environmental laws. (b) Lessee's obligations and liabilities under this Paragraph shall survive the expiration of this Lease. 49. MAINTENANCE AND REPAIRS 49.1 The Lessor shall contract for and manage the maintenance and repair of the building's HVAC System, the roof, the parking structure, the exterior lighting of the building, and all landscaping or hard surface areas of the Premises (Maintenance and Management Services). The Lessee shall pay monthly, as additional rent, an estimate of the cost of such Maintenance and Management Services. At the end of each calendar year the actual cost of the Maintenance and Management Services for the preceding year shall be calculated. If the actual maintenance costs exceed the estimated payment, Lessee shall pay to Lessor the full amount of such shortfall in addition to the monthly rental due. If the estimated payment is in excess of the actual costs, Lessor shall credit such overpayment to Lessee's next occurring rental obligation. The estimated payment for the then current calendar year shall be adjusted to approximate the average monthly cost for the previous year's expenses. The monthly costs of Maintenance and Management Services for the calendar year 1990 shall be based on the following estimates: Building Insurance 200 Parking structure sweeping service 300 HVAC maintenance service contract 522 HVAC repair estimate 500 Landscape 393 Building exterior/parking structure lights/fixtures 267 Maintenance department allocation (2% of total allocation) 500 Property management allocation (2% of total allocation) 360 ----- TOTAL monthly estimate $3042 49.2 The buildings in Continental Park are painted every five years. The Premises are scheduled to be painted in years three (3) and Eight (8) during the lease term. 50. OPTIONS TO EXTEND. 50.1 Lessee shall have one (1) five-year option to extend the term of this Lease (Extension Option). Lessee shall be required to give Lessor written notice of its election to 3 exercise the Extension Option at least one (1) year prior to the commencement of the term of the Extension Option. 50.2 In the Event Lessee elects to exercise the Extension Option, the Base Rent during the Option term shall be Ninety-Five Percent (95%) of the then fair market Base Rent (New Base Rent) for comparable vacant space in Continental Park (Park), taking into account the Commencement Date of the Option term, the terms and conditions of the lease form that Lessor is then using in the Park, including periodic automatic increases in Base Rent, if any, but not less than the Base Rent payable during the last month of the term preceding the term of the Extension Option in question. Should there be no comparable vacant space in the Park. The term fair market Base Rent shall mean the Base Rent for that space which would be paid by a willing Lessee to a willing Lessor, neither of whom is compelled to rent, for a term of five years, disregarding such inducements as free rent, free parking, over-standard lessee improvements, and Lessor's assumption of existing leases. 51. ASSIGNMENT AND SUBLETTING 51.1 Consent Required (a) Lessee shall not assign or transfer this Lease, or any interest therein, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the invitees, agents and servants of Lessee excepted ) to occupy or use the Premises, or any portion thereof, or agree to any of the foregoing, without in each case first obtaining the written consent of Lessor, in accordance with subsection (a), below. Neither this Lease nor any interest therein shall be assignable as to the interest of Lessee by operation of law, without the written consent of Lessor. Lessee shall not pledge, hypothecate or encumber this Lease, or any interest therein, without in each case first obtaining the written consent of Lessor, which consent shall not unreasonably be withheld. Any such assignment, transfer, pledge, hypothecation, encumbrance sublease or occupation of, or the use of the Premises by any other person without such consent, shall be void and shall make this Lease voidable at the option of Lessor. Any consent to any assignment, transfer, pledge, hypothecation, encumbrance, sublease or occupation or use of the Premises by any other person which may be given by Lessor shall not constitute a waiver by Lessor of the provisions of this Section or a release of Lessee from the full performance by it of the covenants herein contained. (b) If Lessee desires at any time to assign this Lease or sublet all or any portion of the Premises, Lessee shall first notify Lessor at least sixty (60) days prior to the proposed effective date of the assignment or sublease, in writing, of its desire to do so and shall submit in writing to Lessor (1) the name of the proposed sub-tenant or assignee, (2) the nature of the proposed sub-tenant's or assignee's business to be carried on in the Premises, (3) the terms and conditions of the proposed sublease or assignment and (4) financial statements for the two most recent completed fiscal years of the proposed sub-tenant or assignee, and a bank reference. Thereafter, Lessee shall furnish such supplemental information as Lessor may reasonably request concerning the proposed sub-tenant or assignee. At any time within (15) days after Lessor's receipt of the information specified above, Lessor may by written notice to Lessee elect to (1) consent to the sublease or assignment, or (2) reasonably disapprove of the sublease or assignment, setting forth in writing Lessor's grounds for doing so. Such grounds may include, without limitation, a material increase in the impact upon the Building Services and common areas of the Building or the parking facilities, a material increase in the demands upon utilities and services supplied by Lessor, a possible material adverse effect upon the reputation of the Building from the nature of the business to be conducted, or a reputation for financial reliability on the 4 part of the proposed sub-tenant or assignee which is unsatisfactory in the reasonable judgment of Lessor. If Lessor consents to the sublease or assignment within the fifteen (15) day period, Lessee may thereafter enter into such assignment or sublease of the Premises, or a portion thereof, upon the terms and conditions and as of the effective date set forth in the information furnished by Lessee to Lessor. 51.2 Applicable Terms and Conditions (a) Regardless of Lessor's consent, no assignment or subletting shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's Share of Operating Expense Increase, and to perform all other obligations to be performed by Lessee hereunder. (b) Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. (c) Neither a delay in the approval or disapproval of such assignment or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph 51 or this Lease. (d) If Lessee's obligations under this Lease have been guaranteed by third parties, then an assignment or sublease and Lessor's consent thereto shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. (e) The consent by Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent and such action shall not relieve such persons from liability under this Lease or said sublease; however, such persons shall not be responsible to the extent any such amendment or modification enlarges or increases the obligations of the Lessee or sublessee under this Lease or such sublease. (f) In the event of any default under this Lease, Lessor may proceed directly against Lessee, any guarantors or any one else responsible for the performance of this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (g) Lessor's written consent to any assignment or subletting of the Premises by Lessee shall not constitute an acknowledgment that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. (h) The discovery of a material fact that any financial statement relied upon by Lessor in giving its consent to an assignment or subletting was false shall, at Lessor's election, render Lessor's said consent null and void. 51.3 Additional Applicable Terms and Conditions Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: 5 (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a default shall occur in the performance of Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor nor by reason of the collection of the rents from a sublessee be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a default exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents due and to become due under the sublease. Lessee agrees that such sublessee shall have the right to rely upon any such statement and request from Lessor, and that such sublessee shall pay such rents to Lessor without any obligation or right to inquire as to whether such default exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee or Lessor for any such rents so paid by said sublessee to Lessor. (b) No sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. Any sublease shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. (c) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to the termination of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Each permitted assignee, transferee or sublessee, other than Lessor, shall assume and be deemed to have assumed this Lease and shall be and remain liable jointly and severally with Lessee for the payment of the rent and for the due performance or satisfaction of all of the provisions, covenants, conditions and agreements herein contained on Lessee's part to be performed or satisfied. No permitted assignment shall be binding on Lessor unless such assignee or Lessee shall deliver to Lessor a counterpart of such assignment which contains a covenant of assumption by the assignee, but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability as set forth above. (f) If Lessee is a partnership, a transfer of any interest of a general partner, a withdrawal of any general partner from the partnership, or the dissolution of the partnership, shall be deemed to be an assignment of this Lease. (g) If Lessee is a corporation, unless Lessee is a public corporation, viz, whose stock is regularly traded on a national stock exchange, or is regularly traded in the over-the-counter market and quoted on NASDAQ, any dissolution, merger, 6 consolidation or other reorganization of Lessee or sale or other transfer of a percentage of capital stock of Lessee which results in a change of controlling persons, or the sale or other transfer of substantially all of the assets of Lessee, shall be deemed to be an assignment of this Lease. Understanding the foregoing, Lessee shall be permitted to assign this Lease without Lessor's prior written consent (or the payment of any fee) to AVX Corporation so long as Lessee gives Lessor written notice ten (10) days after such assignment has occurred. (h) Any notice by Lessee to Lessor pursuant to Section 51.1(b) of a proposed assignment or subletting shall be accompanied by a payment of One Thousand Dollars ($1000) as a fee for Lessor's time and the processing of Lessee's request for Lessor's consent. Should Lessor approve any such assignment or sublease, said $1000 shall be non-refundable. If Lessor disapproves any such assignment or sublease, Lessor shall refund only that portion of the $1000 which is not used to cover Lessor's General and Administrative costs and other expenses attributable to processing Lessee's proposal of assignment or sublease. 51.4. Involuntary Assignment and Bankruptcy (a) In the event this Lease is assigned to any person or entity pursuant to provisions of the Bankruptcy Code, 11 USC S101, et seq., (the "Bankruptcy Code"), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Lessor, shall remain the exclusive property of Lessor, and shall not constitute property of Lessee or of the estate of Lessee within the meaning of the Bankruptcy Code. Any and all monies or other consideration constituting Lessor's property under the preceding sentence not paid or delivered to Lessor shall be held in trust for the benefit of Lessor and be promptly paid to or turned over to Lessor. (b) If Lessee, pursuant to this Lease, proposed to assign the same pursuant to the provisions of the Bankruptcy Code, to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to Lessee, then notice of the proposed assignment setting forth (i) the name and address of such person, (ii) all of the terms and conditions of such offer, and (iii) the assurances referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to the Lessor by the Lessee no later than twenty (20) days after receipt of such offer by the Lessee, but in any event no later than ten (10) days prior to the date that Lessee shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption, to be exercised by notice to the Lessee given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be payable out of the consideration to be paid such person for the assignment of this Lease. (c) Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on or after the date of such assignment. Any such assignee shall, upon demand, execute and deliver to Lessor an instrument confirming such assumption. (d) Lessor may consider the adequacy of a security deposit and the net worth and other financial elements of the proposed assignee in determining whether or not the proposed assignee has furnished Lessor with adequate assurances of its ability to perform the obligations of this Lease. 7 (e) In the event Lessor rejects the proposed assignee, the rights and obligations of the parties hereto shall continue to be governed by the terms of this Lease, and Lessee shall have all the rights of a tenant under applicable California law. 52. PARKING 52.1 Lessee shall have the right to park 250 cars in the parking structure which is attached to the Premises. The 250 spaces will be assigned to the several levels of the parking structure as follows: 13 spaces shall be on the first (lower) level against the south (or Building) wall, 35 spaces shall be on the second level adjacent to the Building entrance, the remaining spaces shall be located on the third level (98 spaces) and the fourth level (104 spaces). 52.2 Unless specifically stated otherwise, any and all parking rights and/or privileges granted to Lessee hereby shall only be enforceable by Lessee or Lessor for Lessee's benefit during Lessee's regular hours of business if specified. If not so specified, regular business hours are deemed to be 7:00 a.m. until 5:00 p.m. During the period from 5:01 p.m. to 6:59 a.m. Lessor has the right to permit others to use any and all vacant parking spaces to which this lease applies, as Lessor sees fit. 53. RENT INCREASE 53.1 At the times set forth in Section 4. (Rent) of the Basic Lease Provisions, the monthly Rent payable under Section 4 of this Lease shall be adjusted by the Increase, if any, in the Consumer Price Index of the Bureau of Labor Statistics of the Department of Labor for All Urban Consumers (1982-84 = 100), "All Items," for Los Angeles-Anaheim-Riverside (CPI) since the date of this Lease. 53.2 The monthly Rent payable pursuant to Section 4 shall be calculated as follows; the Rent payable for the first month of the term of this Lease shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month during which the adjustment is to take effect, and the denominator of which shall be the CPI for the calendar month in which the original Lease term commences. The sum so calculated shall constitute the new monthly Rent hereunder, but, in no event, shall such new monthly Rent be less than the Rent payable for the month immediately preceding the date for the rent adjustment. 53.3 In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculations. In the event that Lessor and Lessee cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in the County in which the Premises are located, in accordance with the then rules of said association and the decision of the arbitrators shall be binding upon the parties, notwithstanding one party failing to appear after due notice of the proceeding. The cost of said Arbitrators shall be paid equally by Lessor and Lessee. 53.4 Lessee shall continue to pay the rent at the rate previously in effect until the increase, if any, is determined. Within five (5) days following the date on which the increase is determined, Lessee shall make such payment to Lessor as will bring the increased rental current, commencing with the effective date of such increase through the date of any rental installments then due. Thereafter the rental shall be paid at the increased rate. 8 54. LENDER MODIFICATION Lessee agrees to make such reasonable modifications to this Lease as may be reasonably required by an institutional lender in connection with the obtaining of normal financing or refinancing of the Office Building Project. 55. PARKING OR PLAYGROUND EASEMENT Notwithstanding the description of the Premises contained in Paragraph 2 and Exhibit A of this lease, Lessee acknowledges that the portion of the described Parcel easterly of the building and parking structure is subject to the following uses and hereby consents thereto so long as such use does not materially interfere with Lessee's business operation: (a) The lessees and their invitees of 2221 Rosecrans have the exclusive right to park in designated parking areas so long as Lessee shall have reasonable and unfettered access to the loading dock of the Premises to make deliveries and shipments as may be necessary to Lessee' business operations. In addition lessor may modify the access to the loading dock and eliminate any parking on the east side of the building for the purpose of constructing a child care facility play area. 56. CHILD CARE FACILITY Lessee acknowledges that Lessor is contemplating the development, construction and/or operation of a child care facility which is to be located within Continental Park of which these Premises comprise one portion. Lessee agrees that since such a facility would confer a benefit on Lessee, as well as other Lessees of Continental Park, Lessee will make all reasonable efforts to cooperate with Lessor to accommodate the development and construction of such facility. These efforts shall include but are not limited to the taking of reasonable steps to comply with all local state and federal laws and other regulations which apply to Lessees operation of its business with regard to the placement of a child care facility in close proximity to the Premises or to reasonably modify Lessee's operations so as not to prohibit such placement so long as such action does not materially interfere with Lessee's business operation. LESSOR LESSEE CONTINENTAL DEVELOPMENT TRI-STAR ELECTRONICS, INC. CORPORATION Date 9/15/89 Date ------------------------------ ---------------------------- By /s/ Richard C. Lundquist By /s/ Neal J. Castleman -------------------------------- -------------------------------- Richard C. Lundquist Neal J. Castleman Its President Its President By /s/ Leonard E. Blakesley, Jr. CORY COMPONENTS INCORPORATED -------------------------------- Leonard E. Blakesley, Jr. Its Secretary By /s/ Neal J. Castleman -------------------------------- Neal J. Castleman Its Chairman 9 EX-10.13 47 EXHIBIT 10.13 Exhibit 10.38 KILROY REALTY, L.P. MODIFIED NET INDUSTRIAL BUILDING LEASE THIS MODIFIED NET INDUSTRIAL BUILDING LEASE (this "Lease") is executed this ____ day of ____________, 1997, between KILROY REALTY, L.P., a Delaware Limited Partnership, KILROY REALTY CORPORATION, a Maryland Corporation, General Partner (hereafter called "Lessor") and HOLLINGSEAD INTERNATIONAL, a California Corporation (hereinafter called "Lessee"). W I T N E S S E T H: Lessor hereby leases to Lessee, and Lessee hires from Lessor, that certain real property ("Real Property") with the improvements comprising approximately fifty-eight thousand three hundred three (58,303) rentable square feet, structures, buildings and fixtures located therein or thereon and all appurtenances thereto (the "Improvements"), with the street address of 12442 Knott Avenue, City of Garden Grove, State of California and more particularly described on Exhibit "A" attached hereto and by this reference made a part hereof, subject to governmental regulations and matters of record, for and during the term of seven (7) years, commencing on November 1, 1997 ("the Commencement Date") and ending on October 31, 2004. The Real Property and the Improvements shall sometimes hereinafter be collectively referred to as the "Premises." It is further mutually agreed between the parties as follows: 1. RENT. Lessee agrees to pay to Lessor as rent for the Premises, payable at such place as may be designated by Lessor in writing, in lawful money of the United States of America, the sum of Thirty-One Thousand Four Hundred Eighty-Three and 62/100 ($31,483.62) Dollars ($0.54 per rentable square foot) per month, in advance, on the lst day of each calendar month occurring after the Commencement Date through April 30, 2001 and the sum of Thirty-Seven Thousand Six Hundred Five and 44/100 ($37,605.44) per month ($0.645 per rentable square foot) from May 1, 2001 through October 31, 2004, as said term is fixed under the preceding paragraph hereof. Lessee's obligation hereunder for the first and last month shall be prorated on the basis of the commencement and expiration, respectively, of Lessee's right of occupancy. 2. SECURITY DEPOSIT. Lessee further agrees to pay to Lessor Thirty-One Thousand Four Hundred Eighty-Three and 62/100 ($31,483.62) Dollars as a security deposit to be held by Lessor as security for the faithful performance by Lessee of all the terms, covenants and conditions of this Lease to be kept and performed by Lessee during the term hereof. If Lessee defaults with respect to any provision of this Lease, including, but not limited to the provisions relating to the payment of rent, Lessor may (but shall not be required to) use, apply or retain all or any part of this security deposit for the payment of rent or any other sum in default, or for the payment of any amount which Lessor may spend or become obligated to spend by reason of Lessee's default, or to compensate Lessor for any other loss or damage which Lessor may suffer by reason of Lessee's default. If any portion of said deposit is so used or applied, Lessee shall within ten (10) days after written demand therefor, deposit cash with Lessor in an amount sufficient to restore the security deposit to its original amount and Lessee's failure to do so shall be a material breach of this Lease. Lessor shall not be required to keep this security deposit separate from its general funds, and Lessee shall not be entitled to interest on such deposit. If Lessee shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit or any balance thereof shall be -1- returned to Lessee or, at Lessee's option, to the last assignee of Lessee's interest hereunder at the expiration of the Lease term. In the event of termination of Lessor's interest in this Lease, Lessor shall transfer said deposit to Lessor's successor-in-interest. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security so that the amount of deposit held by Lessor shall at all times bear the same proportion to the then current rent as the original security deposit bears to the original monthly rent set forth in paragraph 1, hereof. 3. USE. The Premises are leased to Lessee for the purpose of conducting therein light manufacturing, assembly and distribution of avionic equipment and for any other use which is reasonably comparable and for no other purpose. Lessee covenants and agrees that it shall not use the Premises in a manner which would constitute a nuisance or cause an unreasonable annoyance to any other lessee of Lessor or to Lessor, and that if Lessee violates this covenant, Lessee shall immediately cease and refrain from engaging in such use upon notice from Lessor. 4. EARLY/DELAY IN POSSESSION. Lessee shall be permitted early access to the Premises on October 1, 1997 for the purposes of preparing the building located thereon for occupancy and use by Lessee, including without limitation the installation and electrical hookup of machinery and equipment used in Tenant's business; provided, however, that Lessee's preparation for occupancy and use shall not unreasonably interfere with any ongoing construction of tenant improvements in, and/or the refurbishing of, the building comprising a portion of the Premises. If Lessee occupies the Premises prior to said Commencement Date, such occupancy shall be subject to all provisions hereof but such occupancy shall not advance the Commencement Date or the termination date, and Lessee shall not be required to pay rent for such period of early occupancy. Notwithstanding said Commencement Date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within one hundred twenty (120) days from said Commencement Date, Lessee may, at Lessee's option, by notice in writing to Lessor within thirty (30) days thereafter, but not subsequent to the date possession of the Premises is tendered to Lessee, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said thirty (30) day period, Lessee's right to cancel this Lease hereunder shall terminate and be of no further force or effect. 5. WASTE. Lessee shall not commit, or suffer to be committed, any waste upon said Premises, or any nuisance, or other act or thing which may disturb the quiet enjoyment of any other lessee in the building in which the Premises may be located. 6. COMPLIANCE WITH LAW. Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term Commencement Date. In the event it is determined that this warranty has been violated, then after written notice from Lessee, Lessor's sole obligation with regard to such warranty is to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not -2- give to Lessor written notice of the violation of this warranty within six (6) months from the later of (a) Lease Commencement Date, or (b) the date Lessee takes actual possession of the Premises, the correction of same shall be the obligation of Lessee at Lessee's sole cost. The warranty contained in this paragraph shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation at Lessee's sole cost. Lessee shall at its sole cost, comply with all covenants, conditions and restrictions of record or later recorded, and all ordinances, statutes, rules and regulations of any lawful authority (including without limitation the Americans With Disabilities Act) having jurisdiction over Lessee or the Premises now in force or which may thereafter be in force, relating to the use, condition or occupancy of said Premises, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises. If Lessor gives Lessee notice of Lessee's noncompliance with any of the matters or requirements set forth in this paragraph, Lessee shall within a reasonable time period cause said Premises to comply. In the event Lessee does not bring its use, occupancy or the condition of the Premises into compliance within such reasonable time period, Lessor reserves the right, at its option, to do so, and charge the cost and expense thereof to Lessee together with the maximum permissible interest from the date of Lessor's payments, and Lessee promises to and agrees to pay the cost and expense thereof. 7. ALTERATIONS. Except in the event of an emergency, Lessee shall not make or suffer to be made, any alterations, additions or utility installations ("an Alteration") on or about said Premises which violate any ordinance, statute law, rule or regulation (including without limitation the Americans With Disabilities Act). Further, any Alteration on or to the Premises shall not be made without the prior written consent of Lessor. Lessor's prior written consent shall not be necessary for emergency repairs. Unless otherwise agreed in writing by Lessor and Lessee, any Alterations of said Premises, except movable furniture and trade fixtures, shall become at once a part of the realty and belong to Lessor. Lessor shall have the right to increase the security deposit under paragraph 2 hereof in an amount reasonably calculated in good faith by Lessor to cover the cost to repair the altered portion of the Premises to its original condition, and Lessee covenants to immediately remit to Lessor such increased security deposit. Lessee shall furnish Lessor with plans and specifications or other detailed information covering such work, and, upon Lessor's written request, furnish Lessor with a lien and completion bond to insure payment of the costs thereof. Any and all costs of such Alterations, additions or installation shall be borne and paid, on or before the due date, by Lessee. Upon the termination of this Lease for any reason, Lessee shall be required at Lessor's option (to be exercised at any time) to remove said Alterations from the Premises and to restore said Premises to their original condition at the sole cost of Lessee. Upon the failure of Lessee to restore the Premises to their original condition, Lessor may utilize the security deposit or any portion thereof to restore the Premises or correct any loss or damage to the Premises at the sole cost of Lessee. Notwithstanding the foregoing sentence, if Lessee anticipates that it would prefer to leave in place as a part of the Premises any Alteration, then concurrently with Lessee's request for approval of such Alteration, Lessee shall request of Lessor that Lessor consent to such Alteration remaining as a part of the Premises upon the termination of this Lease. Lessor may give or withhold such consent, in whole or part, acting in a commercially reasonable manner. If Lessor does not so consent then Lessee shall comply with the preceding provisions of this paragraph 7. -3- 8. FIXTURES. All signs and all trade fixtures and trade equipment which have been or may be installed, placed or attached in or about the Premises by Lessee shall always remain the property of Lessee and upon termination by expiration of time or otherwise of this Lease, or at any prior time, Lessee shall remove all or any of said signs, trade fixtures and trade equipment so installed, placed or attached provided, however, that any damage caused to the Premises by reason of such removal shall be repaired and paid by Lessee. Lessor may at the termination of this Lease at its option require the removal by Lessee at the expense of Lessee of any signs, trade fixtures, trade equipment or other property installed, placed or attached to, in or about the Premises by Lessee. Any property of Lessee not removed from the said Premises upon the termination of this Lease or within a reasonable time thereafter shall at the option of Lessor be deemed abandoned by Lessee and become the property of Lessor. Any consents to the filing of UCC Financing Statements or similar security instruments may be unreasonably withheld by Lessor in its sole discretion. In the event Lessor consents to any such security instrument being filed with the applicable governmental entity, Lessee shall pay all of Lessor's legal fees incurred in connection therewith. 9. TAXES AND ASSESSMENTS. In addition to the rental hereinbefore provided to be paid, Lessee covenants and agrees to timely reimburse Lessor for all taxes which may be imposed upon the Premises, including the land and improvements constituting the same. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount and the reasonable computation thereof but in no event shall Lessee be required to tender payment for taxes more than thirty (30) days prior to the due date therefor. Lessee's obligation hereunder for the first year and the last year shall be prorated on the basis of the commencement and expiration, respectively, of Lessee's right of occupancy. a. The term "real property tax" shall mean and include any form of assessment, license fee, license tax, business license fee, business license tax, commercial rental tax, levy, charge, penalty, tax or similar imposition, imposed by any authority having the direct or indirect power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Lessor in the Premises, including, but not limited to, the following: (i) any tax on Lessor's right to rent or other income from the Premises or against Lessor's business of leasing the Premises; (ii) any assessment, tax, fee, levy or charge in substitution, partially or totally of any assessments tax, fee, levy or charge previously included within the definition of real property tax, it being recognized by Lessee and Lessor that several modifications of the property law enacted by the voters of the State of California have restricted revenues raised through the property tax and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Lessee and Lessor that all new and increased assessments, taxes, fees, levies and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of "real property tax" for the purpose of this Lease; (iii) any assessment, tax, fee, levy or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any tax on Lessor's right to receive, or the receipt of, rent or income from the Premises or against Lessor's business of leasing the Premises levied by the state, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by -4- Lessor or Lessee of the Premises, or any portion thereof; and (iv) any assessment, tax, fee, levy or charge upon this transaction or any document to which Lessee is a party, creating or transferring an interest or an estate in the Premises. "Real Property tax" shall not include Lessor's federal or state income, franchise, inheritance, gift or estate taxes. b. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel or other basis assessed, tax levied or charged, such proportion to be reasonably determined in good faith by Lessor from the respective valuations assigned in the taxing entity's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. c. Lessee shall pay prior to delinquency or reimburse Lessor for all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere, which taxes shall include taxes of every kind and nature levied and assessed in lieu of, in substitution in whole or in part for, or in addition to, existing or additional personal property taxes, whether or not now customary or within the contemplation of the Lessor or the Lessee. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's personal property. 10. UTILITIES. Lessee shall pay for all sewer, water, gas, heat, light, power, telephone and other utilities and services of every kind supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion (to be determined by Lessor) of all charges jointly metered with other Premises. 11. ACCEPTANCE OF PREMISES. Subject to subparagraphs 37a and 37b below, by entry hereunder, Lessee hereby accepts the Premises in their condition existing as of the Commencement Date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 12. MAINTENANCE. Lessee shall at its sole cost keep and maintain the Premises and appurtenances and every part thereof (except foundations which Lessor agrees to repair), including windows and skylights, if any, sidewalks adjacent to said Premises, the exterior roof and exterior walls, and any storefront and interior of the Premises in good, safe and sanitary order, condition and repair, hereby waiving all right to make repairs at the expense of Lessor whether or not such right arises by operation of law or otherwise. In the event it becomes necessary to repair or replace the exterior roof, any such work shall be performed in accordance with Lessor's specifications then in effect. Lessor shall have the responsibility to paint the exterior walls of the Premises, at Lessee's sole cost and expense, no more often than every five (5) years from the date of the last such painting. Lessee agrees to promptly reimburse Lessor for all reasonable costs incurred in connection with such painting activity after Lessor shall have -5- given within notice of such costs to Lessee but in no event shall such reimbursement be later than the due date of Lessee's next installment of rent. Except as expressly provided in this Lease, Lessor shall have no duty, obligation or liability whatsoever to care for or maintain the Premises or the building of which the Premises may be a portion, including but not limited to structural or nonstructural portions of the Premises and all adjacent sidewalks, landscaping maintenance, driveways, parking lots, fences and signs located in the areas which are adjacent to and included with the Premises. In the event that by any express provision of this Lease, Lessor agrees to care for, repair or maintain all, or any part of the Premises or the building of which it is a part, such agreement on the part of Lessor shall constitute a covenant only, and no obligation or liability whatsoever shall exist on the part of Lessor to Lessee or any other person by reason thereof unless and until Lessee shall have first served upon Lessor personally a prior thirty (30) day notice in writing specifying with particularity the provision of this Lease whereunder said duty on the part of Lessor is claimed to exist, together with the repairs required to be made by Lessor in the performance of such duty. In the event Lessor fails to make the repairs required to be made by Lessor under the terms of this Lease, Lessee may (but shall be under no obligation to do so) make said repairs and offset the cost thereof against the next installment of rent together with interest at the rate set forth in paragraph 34 below, from the date of Lessee's payments. In the event Lessee fails to make the repairs required to be made by Lessee under the terms of this Lease, Lessor may (but shall be under no obligation to do so) enter upon the Premises and make said repairs and charge the cost thereof to Lessee as part of the next installment of rent together with interest at the rate set forth in paragraph 34 below, from the date of Lessor's payments, and Lessee promises and agrees to pay the cost thereof. 13. CONDITION UPON TERMINATION. On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as when received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the Premises in good operating condition. In the event Lessee terminates this Lease for any reason whatsoever prior to the expiration of the term hereof, Lessee shall pay Lessor the full cost it would incur in order to return the Premises to its original condition, including repainting, replacement of carpeting and other floor surfaces, replacement of ceiling tile and plumbing fixtures, replacement of landscaping, and any and all additional replacement costs it would incur in restoring the Premises to its original condition, ordinary wear and tear excepted. Any decision to replace or repair any item referenced above shall be made solely at Lessor's reasonable, good faith discretion. 14. LIENS. Lessee shall keep said Premises free of all liens arising out of work done for or debts or taxes incurred by or assessed to Lessee and agrees to hold Lessor harmless therefrom. If Lessor discharges any such lien, Lessee agrees to save Lessor harmless therefrom and to pay Lessor thereon the cost of discharging such lien together with interest at the rate set forth in paragraph 34 below, from the date Lessor discharges such lien together with Lessor's costs and reasonable attorney's fees in -6- connection with the settlement, trial or appeal of any such lien matter, which sum shall be payable with the next installation of rent due. 15. LIABILITY AND INDEMNITY. Lessee covenants and agrees to indemnify, hold harmless, save and defend Lessor from and against any and all loss, damage, claim, cost, charge or expense arising or resulting from: (i) Lessee's use of the Premises; (ii) the conduct of Lessee's business or anything else done or permitted by Lessee to be done in or about the Premises; (iii) any breach or default in the performance of Lessee's obligations under this Lease; or (iv) other acts or omissions of Lessee. Lessee shall defend Lessor against any such loss, damage, claim, cost, charge or expense at Lessee's sole cost and expense with counsel reasonably acceptable to Lessor or, at Lessor's election, Lessee shall reimburse Lessor for any legal fees or costs incurred by Lessor in connection with any such claim. As a material part of the consideration to be rendered to Lessor, Lessee hereby assumes all risk of damage to property or injury to persons in or about the Premises from any cause other than Lessor's negligence or willful misconduct and Lessee hereby waives all claims against Lessor and agrees to indemnify Lessor against all claims in respect thereof, except for any claim arising out of Lessor's negligence or willful misconduct. Lessee further covenants and agrees to indemnify, hold harmless, save and defend Lessor from and against any and all claims, liens, liability, loss or damage, including, but not limited to, costs, expenses, and attorneys' fees arising out of Lessee's obligations under the California Occupational Safety and Health Act or any similar laws or statutes pertaining to the provision of a safe place or safe equipment to employees. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee, if any, of the building in which the Premises are located. 16. INSURANCE. No use shall be made or permitted to be made of said Premises, nor acts done, which will increase the existing rate of insurance upon the building in which said Premises may be located, or cause a cancellation of any insurance policy covering said building, or any part thereof, nor shall Lessee sell, or permit to be kept, used or sold, in or about said Premises, any article which may be prohibited by standard form of fire insurance policies. Lessee shall at its sole cost assume any increase of fire insurance premiums on the entire building necessitated by reason of the Lessee's occupancy. Lessee shall, at its sole cost, comply with any and all requirements pertaining to the use of said Premises of any insurance organization or company necessary for maintenance of reasonable fire and public liability insurance, covering said building and appurtenances. Lessee hereby waives any and all rights of action or recovery against Lessor for loss of, damage to or destruction of property of Lessee or property of others in custody of Lessee on the Premises occasioned by perils insured in standard fire and extended coverage insurance policies. -7- Lessee shall procure and supply to Lessor a written waiver of subrogation for the benefit of Lessor on all fire and extended coverage insurance policies carried by Lessee insuring Lessee's property at the Premises. Lessee agrees to maintain at its sole cost during the term hereof the following insurance with respect to the Premises and the use thereof, namely: a. Comprehensive public liability and property damage liability insurance (including contractual liability insurance for liabilities assumed under this Lease, and including products and completed operations insurance) with limits of not less than $1,000,000.00 for injuries to or death to any one person and $1,000,000.00 for injuries to or deaths arising out of any one occurrence, and $1,000,000.00 for injury to or destruction of property arising out of any one occurrence, and $3,000,000.00 cumulative from all events. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $10,000.00 per occurrence, and the Lessee shall be liable for such deductible amount. b. Fire and extended coverage insurance covering the Premises in the principal amount of $1,000,000.00. Lessor shall have the option of procuring and providing this fire and extended coverage insurance by written notification to Lessee at the time of execution of this Lease or of execution of any extension thereof in which event Lessee agrees to pay the cost of such insurance in addition to the rental and other costs and considerations set forth elsewhere in this Lease. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $10,000.00 per occurrence, and Lessee shall be liable for such deductible amount. c. Rental value insurance with loss payable to Lessor and any lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor for one (1) year (including all real property taxes, insurance costs and any scheduled rental increases). Said insurance shall provide for one (1) full year's loss of rental revenues from the date of any such loss, and the amount of coverage shall be adjusted annually to reflect the projected rental income, real property taxes, insurance premium costs and other expenses, if any, otherwise payable, for the next twelve (12) month period. d. Boiler and Machinery Insurance in the event pressure vessels are used on the Premises which do not fall within the scope of the extended coverage provisions of the fire insurance policy. Lessor shall have the right to review the amount of insurance coverage annually and to require a higher principal amount of insurance if such a higher limit is recommended by the insurance company or required by a lender whose loan is secured by the Premises. If Lessee fails to procure or maintain the insurance required of Lessee, Lessor may obtain such insurance at Lessor's option and charge Lessee the costs thereof. Each policy of insurance to be obtained by Lessee shall be placed with a company reasonably acceptable to Lessor and shall provide that Lessor is a named insured, and no such policy may be cancelled or coverage reduced without thirty (30) days prior written notice to Lessor and Lessee. Lessee shall furnish Lessor with written evidence satisfactory to Lessor of such insurance prior to occupancy of the Premises and shall deliver to Lessor a renewal certificate of such insurance on or before fifteen (15) days prior to its expiration. -8- 17. WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against under this Agreement, which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 18. LESSOR'S RIGHT OF ENTRY. Lessee shall permit Lessor and its agents to enter into and upon said Premises at all reasonable times to show said Premises to prospective purchasers, lenders or lessees or for the purpose of inspecting the same or for the purpose of maintaining the building in which said Premises are situated, or for the purpose of making repairs, alterations or additions to any other portion of said building, including the erection and maintenance of such scaffolding, canopies, fences and props as may be required, or for the purpose of posting notices of non-liability for alterations, additions, or repairs, or for the purpose of placing upon the property in which the said Premises are located any usual or ordinary "for sale" signs, without any abatement of rent and without any liability to Lessee for any loss of occupation or quiet enjoyment of the Premises thereby occasioned; and shall permit Lessor, at any time within one hundred eighty (180) days prior to the expiration of this Lease, to place upon said Premises any usual or ordinary "to let" or "to lease" signs, also without abatement of rent or liability to Lessee. 19. SIGNS. Lessor has reserved the exclusive right to the exterior front walls, sidewalls, rear walls, and roof of said Premises, and Lessee shall not place or permit to be placed upon said sidewalls, real wall, or roof, any sign, advertisement, or notice without the prior written consent of Lessor, in its sole but reasonable discretion. 20. ABANDONMENT. Lessee shall not vacate or abandon the Premises at any time during the term hereof. 21. PARTIAL AND TOTAL DESTRUCTION. In the event of (i) a partial destruction of said Premises or the building containing same during said term which requires repairs to either said Premises or said building, or (ii) said Premises or said building being declared unsafe or unfit for occupancy by any authorized public authority for any reason other than Lessee's act, use or occupation, which declaration requires repairs to either said Premises or said building, Lessor shall forthwith make such repairs required, provided such repairs can be made within one hundred twenty (120) days under the laws and regulations of authorized public authorities, but such partial destruction (including any destruction necessary in order to make repairs required by any such declaration) shall in no way annul or void this Lease, except that Lessee shall be entitled to a proportionate reduction of the rent while such repairs are being made, such proportionate reduction to be based upon the extent to which the making of such repairs shall reasonably interfere with the business carried on by Lessee in said Premises. If such repairs cannot be made within one hundred twenty (120) days, Lessor may, at its option, make same within a reasonable time, this Lease continuing in full force and effect and the rent to be proportionately abated, as in this paragraph provided. In the event that Lessor does not so elect to make such repairs which cannot be made within one hundred twenty (120) days, or such repairs cannot be made under such laws and regulations, this Lease may be terminated at the option of either party. In respect to any partial destruction (including any destruction necessary in order to make repairs required by any such declaration) which Lessor is obligated to repair or may elect to repair under the terms of this paragraph, the provision of Section 1932, -9- Subdivision (2), and Section 1933, Subdivision (4) of the Civil Code of the State of California are waived by Lessee. In the event said destruction or damage is substantial and occurs during the last six (6) months of the term of this Lease, Lessor, at its option, may terminate and cancel this Lease. A total destruction (including any destruction required by an authorized public authority) of either said Premises or said building shall terminate this Lease. 22. CONDEMNATION. If said Premises or any part thereof are taken under the power of eminent domain, this Lease shall terminate as to the part so taken as of the date the condemning authority takes possession thereof. In such event the rent shall be reduced in the proportion that the floor area taken relates to the total floor area prior to the taking. If more than ten (10%) percent of the floor area of the building located on said Premises or more than fifteen (15%) percent of the area leased hereunder but not occupied by any building is taken by condemnation only then, may Lessee, at Lessee's option, terminate this Lease as of the date the condemning authority takes possession of said condemned portion by giving written notice of termination to Lessor within ten (10) days after receiving notice from Lessor that the condemning authority is taking such possession. If Lessee does not terminate this Lease as hereinabove immediately provided, then the rent payable shall be reduced as set forth above. Any compensation awarded as damages for the taking of said Premises or the appurtenances thereto together with any severance damages shall be the sole property of Lessor, except to the extent that any award is made for trade fixtures or equipment of Lessee which are not part of said real property and except to the extent that Lessee may be paid for moving costs. 23. ASSIGNMENT OR SUBLETTING. Lessee shall not, voluntarily or by operation of law, assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises, or suffer any other person (with the exception of the agents, employees and business invitees of Lessee) to occupy or use the Premises, or any portion thereof, without the prior written consent of Lessor, which consent Lessor may not unreasonably withhold. Any attempted assignment, transfer, mortgage, encumbrance, subletting, occupation or use without such consent first had and obtained, shall be void and shall, at the option of Lessor, terminate this Lease. Any cumulative transfer of, in excess of twenty percent (20%) of interests in the partnership, if Lessee is a partnership, or in excess of fifty percent (50%) of the voting power of the corporation, if Lessee is a corporation, shall constitute a transfer for the purpose of this paragraph. Except that in the event that the assignee under an assignment approved by Lessor and/or such assignee's guarantor, is equally financially responsible as Lessee and the Guarantor of this Lease, and such assignee assumes the covenants and conditions of Lessee pursuant to this Lease, then Lessor shall release Lessee and the Guarantor of Lessee's obligations hereunder of their obligations hereunder and under such guaranty. Lessee shall remain obligated under the covenants and conditions of this Lease notwithstanding any such assignment or subletting. A consent to one assignment, transfer, encumbrance, or subletting to, or occupation or use by one person, is not deemed to be a consent to any subsequent assignment, transfer, encumbrance, subletting, occupation or use. Any assignment, transfer, mortgage, encumbrance, or subletting, occupation or use, whether with or without the consent of Lessor, shall automatically terminate any option to extend this Lease, whether or not such option shall have been exercised at the date of such assignment, transfer, mortgage, encumbrance, subletting, occupation or use, provided the extended term resulting from the exercise of such option shall not already have commenced. -10- Lessor and Lessee hereby acknowledge that this Lease shall only confer upon Lessee the right to possess the Premises in accordance with the terms and conditions of this Lease and that Lessee shall not be entitled to any extra rents, charges, profits or other compensation for the assignment upon an assignment or subletting of Lessee's interest in the Premises. Any extra rents, charges, profits, or other compensation for the assignment payable by an assignee or subtenant of Lessee, or of Lessee's successor, shall become the property of, and be payable to, Lessor; but only in the event that the obligations of Lessee hereunder are released by Lessor and Lessee shall no longer be obligated under the covenants and conditions of this Lease. If Lessee shall request the consent of Lessor for any assignment, encumbrance, or subletting or any act Lessee proposes to do, and Lessor in its sole discretion deems it necessary to consult legal counsel in connection therewith, then Lessee shall pay all of Lessor's reasonable attorney's fees actually incurred and paid in connection therewith. 24. LESSEE'S BREACH. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: a. The abandonment of the Premises by Lessee; b. The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of ten (10) days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph; c. The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph b above, where such failure shall continue for a period of thirty (30) days after written notice hereof from Lessor to Lessee; provided, however that if the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not deemed to be in default if Lessee commenced such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion; d. (i) the making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. Provided, however, in the event that any provision of this paragraph is contrary to any applicable law, such provision shall be of no force or effect. e. The discovery by Lessor that any financial statement given to Lessor by Lessee, or any guarantor of Lessee's obligation hereunder was materially false. In the event of any breach by Lessee in the payment of rent or any material breach of any other covenant or condition of this Lease by Lessee not cured prior to the expiration of any applicable cure period, then Lessor besides other rights or remedies it may have, shall have the immediate right of reentry -11- and may remove all personal property from the Premises; such property to be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of, Lessee. Should Lessor elect to reenter, as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may from time to time, without terminating this Lease, relet said Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Lessor in its sole discretion may deem advisable with the right to make alterations and repairs to said Premises. Rental received by Lessor from such reletting shall be applied: first, to the payment of any cost of such reletting; second, to the payment of the cost of any necessary alterations and repairs to the Premises; third, to the payment of any indebtedness other than rent due hereunder from Lessee to Lessor; fourth, to the payment of any rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied in payment of future rent as the same may become due and payable hereunder. Should such rentals received from such reletting during any month be less than that agreed to be paid during that month by Lessee hereunder, then Lessee shall pay such deficiency to Lessor. Such deficiency shall be calculated and paid monthly. Lessee shall also pay to Lessor, as soon as ascertained, the costs and expenses incurred by Lessor in such reletting or in making such alterations and repairs. No such reentry or taking possession of said Premises by Lessor shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Lessee or unless a termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Lessor may at any time thereafter elect to terminate this Lease for any breach in the payment of rent and any material breach of any other covenant or condition of this Lease which is not cured prior to the expiration of any applicable cure period. In addition to any other remedy Lessor may have, if Lessee breaches this Lease and abandons the Premises before the end of the term, or if Lessee's right to possession is terminated by Lessor because of a breach in the payment of rent and any material breach of any other covenant or condition of this Lease which is not cured prior to the expiration of any applicable cure period, then in either such case Lessor may recover from Lessee all damages suffered by Lessor as the result of Lessee's failure to perform its obligations hereunder, including but not limited to the cost of recovering the Premises, and the worth at the time of the award (computed in accordance with paragraph (b) of Section 1951.2 of the California Civil Code) of the amount by which the rent then unpaid hereunder for the balance of the Lease term exceeds the amount of such rental loss for the same period which Lessee proves, could be reasonably avoided by Lessor. The remedies given Lessor under the terms of this Lease shall be cumulative and in addition to any other rights or remedies which Lessor may have at law or otherwise. Lessor reserves the right to continue this Lease in effect for so long as Lessor does not terminate Lessee's right to possession and to enforce all its rights and remedies under this Lease including the right to recover the rent as it becomes due under this Lease in accordance with the provisions of Section 1951.4 of the Civil Code. 25. SUBORDINATION, NONDISTURBANCE AND ATTORNMENT. This Lease is subject and subordinate to: a. The lien of any mortgages, deeds of trust, or other encumbrances ("Encumbrances") of the Improvements and Property; b. All renewals, extensions, modifications, consolidations and replacements of the Encumbrances; and c. All advances made or hereafter to be made on the security of the Encumbrances. -12- Despite any other provision of this paragraph 25, any Encumbrance holder may elect that this Lease shall be senior to and have priority over that Encumbrance whether this Lease is dated before or after the date of the Encumbrance. However, no such subordination shall be effective unless and until Lessor obtains from the holder of the Encumbrance placed against the Premises a nondisturbance agreement in recordable form, providing that in the event of any foreclosure, sale under a power of sale, ground or master lease termination, or transfer in lieu of any of the foregoing, or the exercise of any other remedy under any such Encumbrance: (i) Lessee's use, possession and enjoyment of the Premises shall not be disturbed and this Lease shall continue in full force and effect as long as Lessee is not in default; and (ii) this Lease shall automatically become a lease directly between any successor to Lessor's interest, as Lessor, and Lessee, as if that successor were the Lessor originally named in the Lease. d. If Lessee has received the nondisturbance agreement referred to in the paragraph immediately following 25c, above, Lessee shall, within ten (10) business days after Lessor's request, execute any further instruments or assurances in recordable form that Lessor reasonably considers necessary to evidence or confirm the subordination or superiority of this Lease to any such Encumbrances. Such subordination instrument(s) shall be strictly limited to matters contained in the nondisturbance agreement, and no such instrument may materially increase any of Lessee's obligations or materially decrease any Lessee's rights under this Lease. Lessee's failure to execute and deliver such instrument(s) shall constitute a default under this Lease only if Lessor has first delivered the nondisturbance agreement to Lessee. Lessee covenants and agrees to attorn to the transferee of Lessor's interest in the Premises by foreclosure, deed in lieu of foreclosure, exercise of any remedy provided in any Encumbrance, or operation of law (without any deductions or setoffs) except as expressly provided in this Lease or in any nondisturbance agreement, if requested to do so by the transferee, and to recognize the transferee as the Lessor under this Lease. The transferee shall not be liable for: (i) any acts, omissions, or defaults of Lessor that occurred before the sale or conveyance; or (ii) the return of any security deposit except for deposits actually paid to the transferee and except as expressly provided in this Lease or in any nondisturbance agreement. f. Lessee agrees to give written notice of any default by Lessor to the holder of any Encumbrance. Lessee agrees that, before it exercises any rights or remedies under the Lease, the lienholder or successorlessor shall have the right, but not the obligation, to cure the default within the same time, if any, given to Lessor to cure the default, plus an additional thirty (30) days. Lessee agrees that this cure period shall be extended by the time necessary for the lienholder to begin foreclosure proceedings and to obtain possession of the building or Premises, as applicable. 26. SURRENDER. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing sublease or subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subleases or subtenancies. -13- 27. ATTORNEYS' FEES. If either party to this Lease brings an action to enforce the terms hereof or declare rights hereunder the prevailing party in any such action shall be entitled to reasonable attorneys' fees as fixed by the Court incurred in the trial or appeal of such matter. 28. NOTICES. All notices shall be in writing. Notice shall be sufficiently given for all purposes as follows: a. When personally delivered to the recipient, notice is effective on delivery. b. When mailed by certified mail with return receipt requested, notice is effective on receipt if delivery is confirmed by a return receipt. c. When delivered by overnight delivery Federal Express/Airborne/United Parcel Service/DHL Worldwide Express or other commercial delivery service, with charges prepaid or charged to the sender's account, notice is effective on delivery if delivery is confirmed by the delivery service. d. When sent by telex or fax or electronic mail (also known as E-mail, and only available if the recipient has an E-mail address) to the last telex or fax or E-mail number of the recipient known to the party giving notice, notice is effective on receipt as long as (i) a duplicate copy of the notice is promptly given by certified mail or by overnight delivery or (ii) the receiving party or the sending equipment delivers a written confirmation of receipt. Any notice given by telex, fax number or E-mail shall be considered to have been received on the next business day if it is received after 5:00 p.m. (recipient's time) or on a nonbusiness day. e. Any correctly addressed notice that is refused, unclaimed or undeliverable because of an act or omission of the party to be notified shall be considered to be effective as of the first date that the notice was refused, unclaimed or considered undeliverable by the postal authorities, messenger or overnight delivery service. f. Addresses for purposes of giving notice are set forth at the end of this Lease opposite the signatories of the parties hereto. Either party may change its address or telex, fax number, or E-mail address by giving the other party notice of the change in any manner permitted by this paragraph 28. 29. SECURITY. If any security be given by Lessee to secure the faithful performance Of all or any of the covenants of this Lease on the part of Lessee, Lessor may transfer and/or deliver the security, as such, to the purchaser of the reversion, in the event that the reversion be sold, and Lessor shall be discharged from any further liability in reference there to upon such transferees written assumption of liability therefor. 30. WAIVER. The waiver by Lessor or Lessee of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. 31. AUCTIONS. Lessee shall not conduct or cause to be conducted any auction, fire, closing out, going out of, business or bankruptcy sale on said Premises or the appurtenances thereto without the prior written consent of Lessor. 32. BINDING, MODIFICATION, ETC. This Lease shall inure to the benefit of and be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns; provided that no assignee for the benefit of creditors, trustee, receiver or -14- referee in bankruptcy shall acquire any rights under this Lease by virtue of this paragraph; this Lease may be modified in writing only. This Lease constitutes the entire agreement of the parties who acknowledge that no oral or other representations have been made by themselves or any agent of either of them with respect to the condition of said Premises or any obligation of the Lessor hereunder or otherwise. The parties agree to execute any documents necessary to carry this Lease into effect. 33. OVERDUE RENT. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the term of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding any other provision of this Lease to the contrary. 34. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Lessee to Lessor which is not paid when due shall bear interest at the rate of twelve percent (12%) per annum from the due date of such amount. However, interest shall not be payable on late charges to be paid by Lessee under this Lease. The payment of interest on such past due obligations shall not excuse or cure any default by Lessee under this Lease. In the event the interest rate specified in this Lease is greater than the rate permitted by law, then the interest rate is hereby decreased to the maximum legal interest rate permitted by law. 35. ESTOPPEL CERTIFICATE. a. Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, (ii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessee or Lessor hereunder, or specifying such defaults if any are claimed; and (iii) such other information reasonably requested by Lessor or a lender to or purchaser from Lessor. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. b. If Lessee fails to deliver such statement within such time, such failure shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one (1) month's rent has been paid in advance. -15- c. If Lessor desires to finance, refinance or sell the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of Lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three (3) years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. d. Lessee shall be responsible for any and all damages Lessor can reasonably show were caused by or related to Lessee's failure to comply with the time periods set forth in this paragraph 35. 36. UNDERGROUND TANKS. Lessor represents to Lessee that to the best of Lessor's actual knowledge without independent investigation or inquiry, as of the date of this Lease, there are no underground storage tanks upon the Property. Notwithstanding anything to the contrary set forth herein, Lessee shall not install underground or above ground storage tanks as defined by any and all applicable laws of any size or shape in the Premises without the prior consent of Lessor. Lessor shall have the right to condition its consent upon Lessee giving Lessor such assurances that Lessor, in its absolute discretion, deems reasonably necessary to protect itself against potential problems concerning the installation, use, removal and contamination of the Premises as a result of the installation and/or use of said tanks. Upon termination of this Lease, Lessee shall at its sole cost and expenses, remove the tanks from the Premises, remove and replace any contaminated soil (and compact the same as then required by law) and repair any damage to the Premises caused by said installation and/or removal, pursuant to all applicable laws, and the supervisions and approval of Lessor. 37. HAZARDOUS WASTE; ENVIRONMENTAL AND RELATED MATTERS. a. Lessor shall promptly furnish or shall have furnished to Lessee prior to the date hereof copies of any and all environmental site assessments or hazardous substance reports of the Premises prepared by or for Lessor or others within the possession of control of Lessor (the "Reports"). Notwithstanding any of the foregoing, Lessee's obligations hereunder shall be contingent upon Lessee's satisfaction with and approval of the Reports and the environmental condition of the Premises as described in the Reports. If Lessee shall fail to disapprove the Reports and the Premises in writing to be delivered to Lessor within the latter to occur of ten (10) days of the receipt by Lessee of the Reports, or July 11, 1997, then Lessee conclusively shall have been deemed to have approved the Reports and the Premises, and this Lease shall be and remain in full force and effect. If Lessee shall, within the latter of said time periods to disapprove the Reports or the environmental condition of the Premises as described in the Reports, by notice in writing to Lessor, then this Lease shall immediately terminate and neither party shall have any further obligation or liability to the other party hereunder. b. During Lessee's inspection of the Premises prior to the date of execution of this Lease, an objectionable odor existed near the street in front of the building. Representatives of the City of Garden Grove performed maintenance work to the storm drain in front of the building and within the street right of way and a missing cover to a sewer line was installed. Lessee shall have until on or before July 11, 1997 within which to satisfy itself that the objectionable odor problem has been corrected to the satisfaction of Lessee. If Lessee shall fail to disapprove the status of the correction to the odor problem in writing to be delivered to Lessor no later than July 11, 1997, then Lessee conclusively shall have been deemed to have approved the status of the correction of the odor problem, and this Lease shall be and -16- remain in full force and effect. If Lessee shall, on or before July 11, 1997 disapprove the status of correction of the odor problem, by notice in writing to Lessor, then this Lease shall immediately terminate and neither party shall have any further obligation or liability to the other party hereunder. Lessee shall cooperate with Lessor and Lessor shall use Lessor's commercially reasonable best efforts to cause the City of Garden Grove to take such action as may be necessary to correct the said odor problem. c. Lessor warrants and represents to Lessee that, to the best of Lessor's actual knowledge without independent investigation or inquiry, as of the date of this Lease: (i) there has been no release onto our under the Premises or the building of any Hazardous Materials (as defined below) in violation of any Environmental Law; (ii) the Improvements contain no PCBs, PCB-contaminated electrical equipment, or asbestos-containing materials; (iii) Lessor has received no notice that the Premises or the Improvements are in violation of any Environmental Law. d. Lessee, at Lessee's sole cost and expense, shall comply with, and shall not use the Premises or suffer or permit anything to be done in, on, or about the Premises which will in any way conflict with any applicable federal, state and local laws, regulations, ordinances, orders or requirements pertaining to Hazardous Materials, waste disposal, air or water quality, and other environmental and health and safety matters (collectively, "Hazardous Materials Laws"). For purposes of this Lease, the term "Hazardous Materials" means any substance, material, waste, contaminant or pollutant (i) determined by any federal, state or local government agency, court, judicial or quasi-judicial body or legislative or quasi-legislative body to be hazardous, toxic, infectious, radioactive, persistent or bioaccumulative, or to require removal, treatment or remediation; (ii) which results in liability to any person or entity for exposure to or discharge of such substance; or (iii) which becomes subject to any Hazardous Materials Law. e. Lessee shall not cause, suffer or permit any Hazardous Materials to be brought upon, stored, used, generated, released into the environment or disposed of on, under, from, or about the Premises (which for purposes of the Lease includes, but is not limited to, subsurface soil and groundwater), without the prior written consent of Lessor. Excluded from the prohibition contained in this subparagraph are such Hazardous Materials as are necessary or useful to Lessee's business, provided that such Hazardous Materials are generated, stored, used and disposed of in compliance with all applicable Hazardous Materials Laws. f. Promptly upon request therefor, Lessee will provide Lessor with true, correct, complete and legible copies of any environmental site assessments pertaining to the Premises prepared by or on behalf of Lessee; reports filed pursuant to self-reporting requirements under any Hazardous Materials Laws; permits, permit applications, monitoring reports, workplace exposure and community exposure warnings or notices reports, plans or documents in Lessee's possession or control relating to Hazardous Materials on, under or about the Premises. g. Lessee shall notify Lessor in writing immediately upon becoming aware of: (i) any enforcement, cleanup, remediation or other action threatened, instituted or completed by anyone with respect to Hazardous Materials on, under or about the Premises; (ii) any claim threatened or made by any person against Lessee for -17- personal injury, property damage, other losses, contribution, cost recovery, compensation or any other matter relating to Hazardous Materials and the Premises; or (iii) any spilling, leaking, dumping or releasing of Hazardous Materials in, on, under or about the Premises that triggers reporting, disclosure, investigation or cleanup obligations under any Hazardous Materials Law. Lessee shall provide to Lessor as promptly as possible, and in any event within five (5) business days after Lessee first receive or sends the same, copies of all claims, reports, complaints, notices, warnings, correspondence or other documents relating in any way to the foregoing. h. If Hazardous Materials contamination caused, suffered or permitted by Lessee is discovered on, under or about the Premises, Lessee shall, as its sole cost and expense, promptly (i) notify Lessor; (ii) undertake site investigation activities necessary to characterize the nature and extent of such contamination; (iii) prepare and provide to Lessor a cleanup plan to remove or remediate the contamination; and (iv) upon Lessor's approval (and upon the approval of any governmental or regulatory agency overseeing the site investigation or cleanup activities), promptly implement the cleanup plan in accordance with applicable Hazardous Materials Laws. In the event that Lessee fails, after reasonable notice and request therefor by Lessor, to take any of the actions required hereunder Lessor may itself take such action and Lessee shall promptly reimburse Lessor for all costs and expenses Lessor incurs in connection with such action. i. To the fullest extent permitted by law, Lessee will indemnify, hold harmless, protect and defend (with attorneys acceptable to Lessor) Lessor and Lessor's officers, directors, shareholders, employees and agents, and any successors to all or any portion of Lessor's interest in the Premises and their directors, officers, partners, employees, authorized agents, representatives, affiliates and mortgagees, from and against any and all liabilities, losses, damages (including, without limitation, damages for the loss or restriction on use of rentable or usable space or any amenity of the Premises or damages arising from any adverse impact on marketing of space in the Premises), diminution in the value of the Premises, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including, but not limited to, reasonable attorneys' fees and disbursements and court costs and all other professional or consultant's expenses), whether foreseeable or unforeseeable, arising directly or indirectly out of the presence, use, generation, storage, treatment, on or off-site disposal, or transportation of Hazardous Materials on, into, from, under, or about the Premises by Lessee, its agents, employees, contractors, licensees or invitees. j. To the fullest extent permitted by law, Lessor will indemnify, hold harmless, protect and defend (with attorneys acceptable to Lessee) Lessee and Lessee's officers, directors, shareholders, employees and agents, and any successors to all or any portion of Lessee's interest in the Premises and their directors, officers, partners, employees, authorized agents, representatives, affiliates and mortgagees, from and against any and all liabilities, losses, damages, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including, but not limited to, reasonable attorneys' fees and disbursements and court costs and all other professional or consultants' expenses), whether foreseeable or unforeseeable, arising directly or indirectly out of the breach of the warranty and representation set forth in paragraph 37a, above, or the presence, prior to the date of this Lease of hazardous substances upon or under the Premises. k. Upon the expiration or termination of this Lease, Lessee shall cause to be removed from the Premises all Hazardous Materials brought upon, used, kept or stored in, on, under or about the Premises by Lessee, as well as all receptacles or -18- containers therefor, and shall cause such Hazardous Materials and such receptacles or containers to be stored, treated, transported and/or disposed of in compliance with all applicable Hazardous Materials Laws. Lessee shall, at its sole cost and expense, repair any damage to the Premises resulting from Lessee's removal of such Hazardous Materials and receptacle or containers therefor. Lessee's obligation to pay rent shall continue until such removal by Lessee has been completed to Lessor's satisfaction, notwithstanding the expiration or early termination or cancellation of the term of this Lease. To ensure performance of Lessee's obligations hereunder, Lessor may, at any time within one (1) year of the expiration of this Lease, or upon the occurrence of a material default under this Lease by Lessee, require that Lessee promptly commence and diligently prosecute to completion an environmental evaluation of the Premises. In connection therewith, Lessor may require Lessee, at Lessee's sole cost and expense, to hire an outside consultant satisfactory to Lessor to perform a complete environmental audit of the Premises, an executed copy of which audit shall be delivered to Lessor within thirty (30) days after Lessor's request therefor. If Lessee or the environmental audit discloses the existence of Hazardous Materials on, under, or about the Premises, Lessee will, at Lessor's request, prepare and submit to Lessor within thirty (30) days after such request a comprehensive clean-up plan, subject to Lessor's approval, specifying the actions to be taken by Lessee to return the Premises to the condition existing prior to the introduction of such Hazardous Materials. Upon Lessor's approval of such clean-up plan, Lessee will, at Lessee's sole cost and expense, without limitation on any rights and remedies of Lessor under this Lease, immediately implement such plan and proceed to clean up such Hazardous Materials in accordance with all Hazardous Materials Laws as required by such plan and this Lease. l. The obligations in this paragraph 37 shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations hereunder unless it specifically states Lessor's intentions to release Lessee with respect thereto. 38. RECORDATION OF SHORT FORM. Either party may record a short form of this Lease stating only that the Premises have been leased on the date hereof and that any subsequent purchaser of the Premises or any part thereof shall be bound by all the terms hereof. 39. GOVERNING LAW. This Lease shall be governed by and enforced in accordance with the laws of the State of California. 40. HEADINGS. Paragraph headings are not a part of this Lease. 41. LESSEE'S BUILDING IMPROVEMENTS PROVIDED BY LESSOR a. Lessor agrees, at Lessor's expense, as soon as practical after executing this Lease, to cause the preparation of construction drawings and specifications, to secure requisite building permits, and to construct the following tenant improvements: (i) Enclosed and air-condition the warehouse area under and above the mezzanine by constructing a dry wall at and above the mezzanine line, across the entire width of the building. Said wall to provide for appropriate man door access and interior windows at mutually agreeable locations. Interior walls and t-bar ceiling of these areas to be painted white. First floor area to be dust sealed and second floor area to be covered with industrial grade tile. -19- (ii) Refurbish existing office area including: 1. New carpet and tile. (Lessee's choice of color) 2. New paint. (Lessee's choice of color) 3. Repair or replace damaged ceiling tiles and vents where necessary; but the replacement or repair of individual tiles will not result in a color mismatch between existing and new or replaced tiles. (iii) Duplicate existing restroom in warehouse area as shown on the attached Exhibit "A." b. Lessor agrees to pursue such construction diligently to completion but shall be under no liability for damage, costs or expense resulting from delays occasioned by acts of God, of the government, of the elements, public enemy, or by fire, flood, storm, earthquake, freight embargoes, inability to obtain labor or materials, strikes, boycotts, delays by contractors or subcontractors for any of the above or any other causes, delays by Lessee in approving either materials or colors which Lessee has the right to approve, or by other causes beyond Lessor's control. c. Upon the termination or cancellation of this Lease for any reason, expiration, failure to extend or default by Lessee, the building improvements shall remain the property of Lessor and Lessee shall not be obligated or entitled to remove them unless notified, in writing prior to construction, by Lessor to the contrary. 42. OPTION TO EXTEND LEASE. In the event that Lessee shall not be in default in the performance of any term or condition of this Lease, then upon the expiration of the Lease term, Lessee shall have the option to extend the Lease for an additional term of five (5) years. Lessee's rights to exercise the option are contingent upon Lessee not being in default in the performance of any term or condition of this Lease or if in default, Lessee shall have cured the same prior to the deadline for exercising the extension option. During the extension period, all the terms and conditions of this Lease shall remain in effect except that the base rental for the extension period will be determined as set forth in paragraph 43, entitled "Rent Determination for Extended Period," and the rental commencing on the thirty-first (31st) month of the extended period will be adjusted as provided in paragraph 44, entitled "Rental Escalations." The option must be exercised by Lessee, if at all, prior to a date which shall be six (6) months prior to the expiration of the Lease term, by notice to Lessor stating that Lessee is exercising its option to extend. Such exercise of the option shall automatically extend the term of the Lease upon the terms and conditions herein set forth, and no further writing need be executed by Lessee or Lessor, except that no term extension shall occur or take effect if, prior to its commencement, Lessee shall have assigned or sublet (by operation of law or otherwise and with or without Lessor's consent) this Lease or the Premises. Once exercised, Lessee shall not have the right to revoke its election to exercise the option. In the event that the option is not exercised as provided for herein within the time provided for, the option shall expire, and Lessee shall have no further right to renew or extend the Lease. 43. REM DETERMINATION FOR EXTENDED PERIOD. Prior to the commencement of the extended period, the base rental initially payable for such period shall be determined as follows: a. Lessee shall, not less than six (6) months nor more than one (1) year before expiration of the initial term, give Lessor written notice of its desire to determine Rent for the -20- extended period. Lessor and Lessee shall have thirty (30) days after Lessor receives such notice to agree in writing to said Rent, which writing signed by each party shall constitute an amendment to this Lease determining the Rent and extending the term in conformity with this Lease. b. If Lessor and Lessee shall fail to reach an agreement as provided in subparagraph 43a, the option to extend shall terminate unless within ten (10) business days after the expiration of the thirty (30) day notice specified in paragraph 43a, Lessee shall give Lessor a notice of its desire to determine the such Rent by appraisement, designating a qualified appraiser for the purpose. Unless, within ten (10) business days after receipt of such notice, Lessor shall designate a qualified appraiser, it shall be deemed to have accepted the qualified appraiser designated by Lessee. For purposes hereof, the term "qualified appraiser" shall mean a Member of the Appraisal Institute with not less than five (5) years' experience in appraising commercial rental properties in Orange County in the State of California and without financial, family, or business connections with either Lessor or Lessee, or any affiliate of Lessor or Lessee, or the officers, directors or employees of any of them. The appraiser or appraisers so appointed shall, within forty-five (45) days of his appointment or of the later of the appointments, submit to Lessor and Lessee appraisal(s) of the Rent for the Extended Term, expressed in terms of a fair monthly rental value in the context of a five (5) year lease, on substantially the terms made herein applicable to the extended term for the then use of the Premises. The Rent for the Extended Term shall be either (i) the amount of the appraisal of the single appraiser; or (ii) where there are two appraisers, the agreed appraisal, if both appraisers are in agreement, or, if they are not in agreement, the average of the two appraisals if the higher does not exceed the lower by more than five percentage (5%) of the lower. If the appraisals determined by the two appraisers hereinbefore appointed differ by more than five percent (5%), then the two appraisers shall appoint a third qualified appraiser who shall submit to Lessor and Lessee within the next ensuing forty-five (45) days an appraisal of the fair rental value of the Premises. The Rent for the Extended Term shall be the average of all three appraisals, unless one appraisal exceeds or is less than an average of the two closer appraisals by more than ten percent (10%), in which case such appraisal will be discarded and the Rent for the Extended Term shall be the average of the two closer appraisals. c. When the Rent for the Extended Term shall have been determined as aforesaid, the Lease shall be amended to reflect said monthly rent payable for the extended term. d. The cost of the appraisal procedure shall be divided equally between the parties. e. Time is of the essence as to the exercise of the extension option by Lessee and of the appraisal procedures specified in this paragraph 43; any failure by Lessee to meet the deadlines herein specified, unless the delay shall have been contributed to by Lessor's actions or omissions, shall terminate this option to extend. f. In no event shall such adjusted monthly rent be less than the rent payable for the month immediately preceding the date of such rent adjustment. 44. RENTAL ESCALATIONS. The amount of the rental payable during the extension period of this Lease shall be subject to adjustment effective the first day of the thirty-first (31st) month of the -21- extension period. Such adjustment will be made by dividing the amount of monthly rental payable on the first day of the extension period by the figure shown in the Consumer's Price Index for All Urban Consumers for the Los Angeles-Anaheim-Riverside area (1982-84 = 100), published monthly in the Monthly Labor Review of the Bureau of Labor Statistics of the United States Department of Labor (or the successor which most closely resemble such Index) for the third month prior to the month in which the extension period commenced, and multiplying the result by the corresponding Index figure for the third month prior to the thirty-first (31st) month of such term or period; provided, however, no reduction in the amount of rent then in effect resulting from such calculation shall occur; provided, however, that the excalated rent shall not be less than four percent (4%) and not greater than eight percent (8%) more than the rent for the first thirty (30) months of the extended term, determined in accordance with paragraph 43, above. 45. HOLDING OVER. Any holding over after the expiration of the initial term, with the consent of Lessor, shall be construed to be a tenancy from month to month, at a rental of Fifty-Six Thousand Four Hundred Eight and 16/100 ($56,408.16) Dollars per month and shall otherwise be on the terms and conditions herein specified so far as applicable. Any holding over at the end of the extended term, if applicable, shall be subject to the same provisions, except that the hold over rental shall be increased by twenty-five percent (25%) over the rent immediately prior to the hold over. 46. COUNTERPARTS. This Lease may be executed in multiple counterparts, each of which shall be an original and all of which, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the date set forth opposite their signatures. Dated: 20 June 1997 KILROY REALTY, L.P., ----------------------- A Delaware Limited Partnership ADDRESS FOR NOTICES: By: KILROY REALTY CORPORATION, A Maryland Corporation, 2250 E. Imperial Highway General Partner Suite 1200 El Segundo, CA 90245 Telex: By: /s/ Illegible ----------------------- -------------------------- Fax: (310) 322-5981 ----------------------- E-mail: Title: EVP-COO ----------------------- ----------------------- with a copy to: "LESSOR" - ------------------------------ - ------------------------------ - ------------------------------ Dated: HOLLINGSEAD INTERNATIONAL, ----------------------- A California Corporation Address for Notices: 2361 Rosecrans Avenue By: /s/ RJ MacDonald Suite 180 ------------------------ El Segundo, CA 90245 Title: Vice-Chairman Telex: ---------------------- ------------------------ Fax: (310) 643-0746 "LESSEE" ------------------------- E-mail: ---------------------- -22- EX-10.14 48 EXHIBIT 10.14 THIS IS AN AGREEMENT OF LEASE, Made and entered into this 12th day of January, A.D. 1982, by and between SUSSEX COUNTY, a political subdivision of the State of Delaware, party of the first part, hereinafter referred to as "Landlord." - AND - GEORGETOWN AIRCRAFT SERVICES, INC., a Delaware corporation, party of the second part, hereinafter referred to as "Tenant." W I T N E S S E T H : IN CONSIDERATION of the mutual covenants hereinafter expressed, the parties hereto agree as follows: 1. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to the conditions hereinafter expressed, that certain parcel of real property, situate near Georgetown, Sussex County, Delaware, being more particularly described as follows. Lots 1 through 7, inclusive, on Indian River Avenue, (consisting of approximately 30,626 acres of land) in Sussex County Industrial Airpark as shown on map entitled Plot Plan, Sussex County Industrial Airpark, prepared by Associated Delaware Engineers, Inc., dated December 3, 1974, a copy of the pertinent portion of which is attached hereto as Exhibit 11. Said lots are particularly described as follows: SEE ATTACHED PLOT OF LANDS OF SUSSEX COUNTY INDUSTRIAL AIRPARK [OMITTED] 2. Landlord agrees that the Tenant, its servants, employees, agents and business invitees shall have at all times the free and uninterrupted rights of access to the said leased property. 3. It is mutually agreed by the parties hereto that the term of this lease shall be for a period of Forty (40) years, commencing on the 1st day of January, A.D. 1982, and terminating on the 31st day of December, A.D. 2021, both dates inclusive unless sooner terminated as provided herein; provided however, that the term of this lease may be extended for four (4) additional five (5) year periods, the first of said five (5) year periods commencing on the 1st day of January, A.D. 2022, and terminating on the 31st day of December A.D. 2026, the second such five (5) year period commencing on the 1st day of January, A.D. 2027, and terminating on the 31st day of December 2031, the third such five (5) year period commencing on the 1st day of January, A.D. 2032 and terminating on the 31st day of December, A.D. 2038 and the fourth such five (5) year period commencing on the 1st day of January, A.D. 2037, and terminating on the 31st day of December, A.D. 2041, unless written notice is given by the Tenant hereto to the Landlord hereto, at its last known address, that this lease shall not be so extended by Registered or Certified Mail with return receipt requested on or before the 30th day of September, A.D. 2021, or similar date not less than ninety (90) days prior to the expiration of any such five (5) year extension period, if this lease is extended for any additional five (5) year period. 4. Tenant agrees to pay to Landlord annual rental for the term of this lease, or any renewal or extension thereof, at the rate of $200.00 per acre, i.e., the sum of $6,125.20 per year in quarterly, semi-annual or annual installments, in advance, as selected by Tenant, which said method of payment may be changed from time to time during the term of this lease or any renewal or extension thereof, the first of said rental payments to be due on the 1st day of January, A.D. 1982. Tenant agrees to pay the rental at the Office of the Director of Finance, or its successor, at the Court House in Georgetown, Sussex County, Delaware, or at such other place or places as the Landlord may designate in writing. Failure of the Tenant to pay to Landlord the annual rental referred to herein shall not be construed as a default of lease unless the Landlord shall have given fifteen (15) days' written notice to the Tenant, at its last known address, then this lease shall be terminated by reason of said default. 5. Tenant agrees, in addition to the fixed rental provided for herein, to pay all lawful taxes made upon the buildings and improvements erected or to be erected upon the premises which are lawfully assessed during the term of this lease or any renewal or extension thereof. 6. Landlord agrees that Tenant may use and occupy the said leased premises for any lawful purpose. Tenant agrees not to use or knowingly permit any part of the said leased premises to be used for any unlawful purpose. Landlord agrees that Tenant may erect upon the said leased premises a building or buildings suitable to the use of Tenant and may, in addition, alter, add to, or improve such building so constructed by Tenant. Tenant shall have the right at any time to terminate this Lease Agreement, if after entering into this Lease Agreement, it is unable to secure all necessary governmental approvals required to carry on the various aspects of its business, or if after securing all such approvals, one or more of such approvals are rescinded, expire or otherwise rendered void thereby preventing or interfering with Tenant's use of the leased premises for this intended purpose. 7. Landlord agrees that Tenant may place or erect on any part of the said leased premises a flat sign of reasonable size bearing the trade name of Tenant. 8. The Landlord shall at all times under the terms hereof maintain the Sussex County Industrial Airpark as an active airport facility in compliance with the regulations of the Federal Aviation Administration. 9. Tenant agrees that Landlord shall not be required to furnish to Tenant any facilities or services of any kind, such as, but not limited to, steam, heat, gas, hot water, electricity, light, or power, except as provided in this lease. Landlord represents, however, that electricity, sanitary sewers and water are available within this Industrial Airpark and will be brought to the site at no expense to Tenant. 10. Tenant agrees during the term of this lease or any renewal or extension thereof, to comply with all laws, ordinances, lawful orders and regulations issued by any governmental authority which affect the said leased premises. 11. The Tenant shall have the right to assign this lease together with all the rights of the Tenant hereunder or enter into a sublease with Landlord's consent, subject to the following conditions: (a) At the time of said proposed assignment or sublease, this lease shall be in full force and effect. (b) The Landlord shall be given written notice of such proposed assignment or sublease not less than forty-five (45) days prior to the effective date thereof. Landlord shall immediately investigate the proposed new tenant to ascertain such proposed tenant's capabilities to carry out a business consistent with the policies and objectives established by Landlord for all tenants in the Airpark. Landlord shall not unreasonably withhold consent of any proposed assignment or sublease and in the event consent is not granted, Tenant shall be advised in writing of the specific reasons for such rejection. Failure of Landlord to grant or deny consent (in writing) within forty-five (45) days from receipt of notice of such proposed assignment or sublease shall constitute the granting of the required consent. (c) Such assignment or sublease shall be in writing duly executed and acknowledged in proper form for recording, and shall be recorded within ten (10) days after execution and delivery thereof. (d) A duplicate original or certified copy of such assignment or sublease together with the recording date shall be furnished to the Landlord within ten (10) days after the return thereof from the Office of the recorder. (e) any assignee or sublessee shall assume this lease by written instrument, a duplicate original of which shall be furnished to the Landlord within ten (10) days after the effective date of such assignment or sublease. Upon making an assignment or sublease, in compliance with the conditions of this paragraph, the Tenant shall be released and relieved of all further liability under this lease from and after the effective date of such assignment or sublease, and each subsequent assignee or sublessee, upon making a further assignment or sublease in compliance with the conditions of this paragraph, shall be released and relieved of all further liability under this lease from and after the effective date of such further assignment or sublease. The Landlord specifically consents to the sublease of this Lease to Thomas Gollicker, Harry B. Helmsley and Leona Helmsley, or to a new corporation composed of the foregoing. This specific consent shall not be construed as a waiver to the right to consent that a further assignment or sublease hereunder. 12. Tenant agrees that no building nor any addition or alteration thereto shall exceed One Hundred (100) feet above existing ground level. 13. Landlord agrees to furnish to Tenant water for general use and fire protection and sanitary sewage and storm water drainage services from the facilities constructed by Landlord at least to the property line of the premises described herein. Tenant agrees that the expense of connection, the furnishing of any water meters, pipe and appurtenances from the property line of Tenant to any improvement erected in said leased premises shall be an expense of Tenant and shall be installed pursuant to the requirements of Landlord and any lawful regulations issued by Landlord pursuant thereto. 14. Landlord agrees that all charges for water and sanitary sewer services to Tenant will be at the rates charged for all other tenants at Sussex County Industrial Airpark. Tenant agrees that the strength and characteristics of all waste water discharged into the sanitary sewer facilities of Landlord shall be within the limits stated on "Waste Water Quantity and Quality Criteria" which is attached hereto as Exhibit "A" and made a part of this lease by reference as though fully set forth herein. 15. Landlord agrees, covenants and represents as follows: (a) That there presently exists and there shall exist during the term of the lease and extensions thereof no real property taxes assessed, levied, placed or charged against the land herein relevant, provided, however, that Tenant is responsible and liable for all real estate tax relating to buildings and improvements which may be constructed upon said land. Landlord shall pay and be responsible for any real property tax that shall be assessed, levied, placed or charged against the land herein relevant. (b) That the Tenant, its servants, employees, agents and invitees shall at all times during the term of this lease and any renewal thereof, have free and uninterrupted right of access (over paved roadways) to the premises herein relevant for all varieties and types of vehicular traffic and movement. Landlord agrees, at no expense to Tenant to provide and maintain all taxiways and roadways required to afford such access to the leased premises from nearby public highways and roads. The taxiway immediately adjoining the easterly side of the demised premises shall be included herein, notwithstanding the fact that this property has been designated as part of the demised premises for parking and other purposes within paragraph 1. (c) That the premises herein relevant is owned in fee simple by the Landlord and that the premises herein relevant is free from any encumbrances of any type. (d) That the Landlord has the right to make this lease and that it will execute or procure any further assurances of title that may be required by the Tenant. (e) That telephone and electric service is and will be available to the Tenant from facilities constructed at least to the property line of the premises described herein by Landlord or parties other than Tenant. (f) That, subject to the agreement with the current fixed base operator, none of the following categories of aviation businesses will be permitted at the Sussex County Industrial Airpark during the time of this lease: A. Aircraft Completion Center comprised of any of the following capabilities: 1. Paint Shop (painting aircraft). 2. Aircraft Metal Shop. 3. Aircraft Wood/Custom Cabinet Shop. 4. Aircraft Avionics Maintenance Shop. 5. Aircraft Avionics Sales and/or Installation Department. 6. Aircraft Upholstery Department/Shop. B. Aircraft Maintenance Facility that caters to aircraft powered by either Turbo Prop or Jet Engine/Engines. C. Aircraft Brokerage Business addressing the Turbo Prop/Jet Market. D. Jet/Turbo Aircraft Charter Business (FAA Part 121, 135 or 135.1 Operation). E. Major Aircraft Part Supply Business that addresses the Turbo Prop Jet Aircraft. F. Airplane/Aircraft Manufacture. This would be a company/partnership or single proprietorship that would design, build and market any type of aircraft. 16. Upon the termination of this lease, Tenant shall have the right to sell any improvements and buildings located on the leased premises, provided such sale is entered into and Landlord so notified within one hundred fifty (150) days following termination of this lease. Landlord agrees that it will offer to and enter into a new lease with the individual or entity to whom Tenant sells, of up to twenty (20) years with three consecutive ten (10) year options of renewal, at the option of the purchasing individual or entity, or in the alternative, if Tenant determines not to sell but to remain in possession, will, at the option of Tenant, enter into a new lease with Tenant of up to twenty (20) years with three consecutive ten (10) year options of renewal. Any such new lease with a purchaser from tenant or with Tenant shall be at the then current rental rates being charged by Landlord for vacant properties within the Airpark, and upon such terms and conditions as are then governing the leasing of properties in the Airpark. It is understood, however, that Tenant shall not be permitted to so sell to any party without the prior written consent of Landlord which shall not be unreasonably withheld. Consent shall not be denied unless it is established upon investigation by Landlord that the proposed purchaser (prospective new Tenant) does not have the capabilities of carrying out a business consistent with the then current policies and objectives established by Landlord for all tenants in this Industrial Airpark. 17. Tenant shall have the right to encumber or mortgage or assign its interest in this lease in connection with securing the financing required to improve the leased premises as planned by Tenant to house its operations, and any buildings or improvements on such premises may be so encumbered or mortgaged. The Landlord shall enter into such consents, attornments, notice requirements, nondisturbance agreements, subordination and estoppel agreements, or other similar reasonable requirements as are necessary to effect the leasehold mortgage permitted herein. 18. Tenant agrees during the term of this lease or any renewal or extension thereof, that any destruction or damage to any building or improvement on the said leased premises by fire, windstorm or any other casualty shall not entitle Tenant to surrender possession of the said leased premises or to terminate this lease or to violate any of its provisions or to cause any rebate or abatement in rent then due or thereafter becoming due under the terms hereof. 19. It is mutually agreed between the parties hereto that any improvement erected on the premises for and during the term of this lease or any renewal or extension thereof shall be deemed to be personal property and may be removed by Tenant or any assignee or Tenant within One hundred fifty (150) days following the termination of this lease either by expiration of time or other reason; provided, however, that no substantial damage to the freehold results; and provided further that upon the failure of Tenant or any assignee of Tenant to remove any improvements so erected within the said One hundred fifty (150) day period, such improvement or portion thereof left upon the said leased premises shall be determined to be abandoned and shall not be removed therefrom and shall become the property of Landlord, subject, however, to the provision of paragraph 16 of this Agreement of Lease. Tenant agrees that any such removal shall be accomplished at the expense of Tenant and not at any expense or liability of Landlord. Tenant agrees to pay to Landlord rental at the rate set forth in paragraph 4 hereof for the number of days after the termination of this lease that Tenant does not remove the improvements from the premises or does not give notice to Landlord that the improvements are not to be removed or the One hundred fifty (150) day period expires, whichever first occurs. 20. In the event Landlord elects to sell the leased premises (Lots 1 through 7, inclusive) as a separate parcel of land during the term of this Lease Agreement, or any renewal or extension thereof, including a renewal resulting from rights conferred by paragraph 16, above, Landlord agrees that it shall first offer to sell the premises to Tenant upon the same terms and conditions it is prepared to sell to a third party purchaser. This right of first refusal shall not be applicable in the event Landlord elects to sell the leased premises, plus additional properties within this Industrial Airpark (or the entire Airpark) as a single transaction for a single purchase price. 21. It is mutually agreed by the parties hereto that any notice under this lease shall be in writing and must be sent by Registered or Certified Mail to the last address of the party to whom the notice is to be given, as designated by such party in writing. Landlord hereby designates its address as County Administrator, Court House, Georgetown, Delaware, 19947. Tenant hereby designates its address as P. O. Box 521, Georgetown, Delaware, 19947, and a carbon copy to its attorney, Warner D. Norton, Esquire, 60 East 42nd Street, Suit 1517, New York, New York, 10165. 22. It is mutually agreed by the parties hereto that the terms "Landlord" and "Tenant" shall refer to and bind not only the parties hereto but also their respective successors and assigns. 23. This lease shall be subject and subordinate to no lien of any kind now or hereafter placed on the land and buildings of which the leased premises form a part. 24. Throughout the term of this lease, the Tenant shall pay all premiums for insurance coverage on the leased property, including fire and windstorm insurance, in such amounts as may be required by the Landlord and with such companies as the Tenant may choose, subject to Landlord's approval. The Tenant shall indemnify the Landlord against all liabilities, expenses, and losses incurred by the Landlord as a result of (a) failure by Tenant to perform any covenant required to be performed by the Tenant hereunder; (b) any accident, injury, or damage which shall happen in or about the leased property or appurtenances, or resulting from the condition, maintenance, or operation of the leased property; (c) failure to comply with any requirements of any governmental authority; and (d) any mechanic's lien, or security agreement, filed against the leased property, any equipment therein, or any materials used in the construction or alteration of any building or improvement thereon. 25. The terms, conditions, covenants and provisions of this lease shall be deemed to be severable. If any clause or provision herein contained shall be adjudged to be invalid or unenforceable by a court of competent jurisdiction or by operations of any applicable law, it shall not affect the validity of any other clause or provision herein, but such other clauses or provisions shall remain in full force and effect. The Landlord may pursue the relief or remedy sought in any invalid clause, by conforming the said clause with the provisions of the statutes or the regulations of any governmental agency in such case made and provided as if the particular provisions of the applicable statute or regulations were set forth herein at length. 26. In all reference herein to any parties, person, entities or corporations, the use of any particular gender or the plural or singular number is intended to include the appropriate gender or number as the text of the within instrument may require. All the terms, covenants and conditions herein contained shall be for and shall inure to the benefit of and shall bind the respective parties hereto, and their heirs, executors, administrators, personal or legal representatives, successors and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their proper officers and their corporate seals to be hereunto affixed, the day and year first above written. SUSSEX COUNTY APPROVED AS TO FORM: BY /s/ Olway I. Hill ------------------------------------- President of County Council BY /s/ Heinrich Schraoker ATTEST /s/ Emogene Elks -------------------------------------- ---------------------------- Acting County Attorney Clerk of County Council GEORGETOWN AIRCRAFT SERVICES, INC. BY /s/ Thomas Gollicker ------------------------------------- Thomas Gollicker President ATTEST /s/ Warner Harte ------------------------------------- [STAMP] Warner Harte Asst. Secretary FIRST AMENDMENT OF LEASE THIS FIRST AMENDMENT OF LEASE is made and entered this 13th day of August, 1997, by and between Sussex County, a political subdivision of the State of Delaware, and Pats, Inc., a Maryland corporation. WHEREAS, Sussex County, as Landlord, and Georgetown Aircraft Services, Inc., as Tenant, entered into an Agreement of Lease, dated January 12, 1982, for approximately 30.626 acres of land in the Sussex County Industrial Airport, Sussex County, Delaware (the "Lease"); WHEREAS, Georgetown Aircraft Services, Inc., as Seller and Pats, Inc., as Buyer, have entered into an Asset Purchase Agreement, dated August 13, 1997, providing for, in part, for the assignment of the Lease from Georgetown Aircraft Services, Inc., to Pats, Inc. (the "Asset Purchase Agreement") pursuant to an Assignment and Assumption Agreement to be executed by Seller and Buyer immediately prior hereto; and WHEREAS, Sussex County has the right, under certain circumstances, to not consent to the assignment of the Lease; and WHEREAS, Sussex County has agreed to consent to the assignment of the Lease from Georgetown Aircraft Services, Inc. to Pats, Inc. provided that there are certain amendments to the Lease, which amendments Pats, Inc. has agreed to accept in exchange for Sussex County's consent to the assignment of the Lease and other consideration to be provided by Sussex County to Pats, Inc. NOW THEREFORE, in consideration of the mutual covenants hereinabove and hereinafter expressed, the parties hereto agree as follows: 1. Subparagraph 15(f)(A.)-(F.) of the Lease is deleted. 2. The following language is added as paragraph 27 of the Lease: "27. Tenant shall not schedule any arrivals or departures of aircraft for hours between 11:00 p.m. and 6:00 a.m." 3. The following language is added as paragraph 28 of the Lease: "28. Notwithstanding the provisions of paragraphs 1 and 3 of the Lease regarding a description of the leased premises and the term of the Lease, respectively, the Landlord and Tenant agree, notwithstanding an extension of the lease by Tenant beyond December 31, 2021, as provided for in paragraph 3 of the Lease, that any of the lots which are part of the leased premises and are not either developed or subleased by the Tenant to a Subtenant or Subtenants, that such lots shall automatically revert back to the Landlord on December 31, 2021, and not be deemed to be a part of the leased premises after December 31, 2021." 4. The following language is added as paragraph 29 of the Lease: "29. Tenant shall pay a fee to Landlord of an amount equal to five percent (5.0%) of the gross annual rent on each sublease that the Tenant enters into with a Subtenant, which fee shall be due by Tenant to Landlord on January 15 for the preceeding six (6) months, and July 15 for the preceding six (6) months. The Landlord may, at its own expense and upon reasonable notice to tenant, audit Tenant's records for the purpose of verifying the accuracy of the payments to be made by Tenant to Landlord hereunder. 5. The following language is added as paragraph 30 of the Lease: "30. Tenant shall pay to Landlord a fee equal to ten cents ($.10) per gallon on the first 100,000 gallons of fuel sold by Tenant to its customers each year and eight cents ($.08) per gallon on each gallon of fuel in excess of 100,000 gallons of fuel sold by Tenant to its customers each year, which fee shall be due on January 15 for the preceding six (6) months, and July 15 for the preceding six (6) months. The Landlord may, at its own expense and upon reasonable notice to tenant, audit Tenant's records for the purpose of verifying 2 the accuracy of the payments to be made by Tenant to Landlord hereunder. 6. The following language is added to paragraph 6 of the Lease between the existing first and second sentences of paragraph 6. "Lawful purpose shall mean any lawful purpose that is related to (1) lawful aviation uses of any kind, or (2) lawful manufacturing uses of any kind." 7. The following language is added to the end of paragraph 11: "The Landlord specifically consents to the sublease of this Lease to an entity wholly-owned by Pats, Inc. This specific consent shall not be construed as a waiver to the right to consent to a further assignment or sublease hereunder." 8. Exhibit "A" to paragraph 14 of the Lease, which is titled "Waste Water Quantity and Quality Criteria" is deleted and replaced with a new Exhibit "A" titled "Waste Water Quantity and Quality Criteria dated July 1, 1997." 9. Sussex County hereby consents to the assignment of Georgetown Aircraft Services, Inc.'s right, title and interest in the Lease, as Tenant, to Pats, Inc. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment of Lease to be executed by their proper officers and their corporate seals to be hereunto fixed the day and year first above written. [SIGNATURE LINE TO FOLLOW] 3 Sussex County Approved As to Form: /s/ By: /s/ Dale R. Dukes - ----------------------------- ------------------------------- Sussex County Attorney President of Sussex County Council Attest: /s/ Robin A. Griffith ---------------------------------- Clerk of Sussex County Council PATS, INC. By: /s/ Larry D. Ohler ---------------------------------- Vice President 4 EX-10.15 49 EXHIBIT 10.15 EXHIBIT 10.14 GENERAL TERMS AGREEMENT between THE BOEING COMPANY and CORY COMPONENTS Number 6-5752-0002 i GENERAL TERMS AGREEMENT TABLE OF CONTENTS SECTION TITLE - ------- ------ 1.0 DEFINITIONS 2.0 ISSUANCE OF PURCHASE ORDERS AND APPLICABLE TERMS 2.1 Issuance of Purchase Orders 2.2 Acceptance of Purchase Orders 2.3 Written Authorization to Proceed 2.4 Rejection of Purchase Orders 3.0 TITLE AND RISK OF LOSS 4.0 DELIVERY 4.1 Requirements 4.2 Delay 4.3 Notice of Labor Disputes 5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES 5.1 Review 5.2 Resident Representatives 6.0 INVOICE AND PAYMENT 7.0 PACKING AND SHIPPING 8.0 QUALITY ASSURANCE, INSPECTION REJECTION AND ACCEPTANCE 8.1 Controlling Document 8.2 Seller's Inspection 8.3 Boeing's Inspection and Rejection 8.4 Federal Aviation Administration or Equivalent Government Agency Inspection 8.5 Retention of Records ii SECTION TITLE - ------- ----- 8.6 Source Inspection 8.7 Language for Technical Information 9.0 EXAMINATION OF RECORDS 10.0 CHANGES 10.1 General 10.2 Model Mix 11.0 PRODUCT ASSURANCE 12.0 TERMINATION FOR CONVENIENCE 13.0 EVENTS OF DEFAULT AND REMEDIES 14.0 EXCUSABLE DELAY 15.0 SUSPENSION OF WORK 16.0 TERMINATION OR CANCELLATION: INDEMNITY AGAINST SUBCONTRACTOR'S CLAIMS 17.0 ASSURANCE OF PERFORMANCE 18.0 RESPONSIBILITY FOR PROPERTY 19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS 20.0 PROPRIETARY INFORMATION AND ITEMS 21.0 COMPLIANCE WITH LAWS 22.0 INTEGRITY IN PROCUREMENT 23.0 INFRINGEMENT 24.0 BOEING'S RIGHTS IN SELLER'S, PATENTS COPYRIGHTS, TRADE SECRETS AND TOOLING 25.0 NOTICES 25.1 Addresses 25.2 Effective Date 25.3 Approval or Consent iii SECTION TITLE - ------- ------ 26.0 PUBLICITY 27.0 PROPERTY INSURANCE 27.1 Insurance 27.2 Certificate of Insurance 27.3 Notice of Damage or Loss 28.0 RESPONSIBILITY FOR PERFORMANCE 28.1 Subcontracting 28.2 Reliance 28.3 Assignment 29.0 NON-WAIVER 30.0 HEADINGS 31.0 PARTIAL INVALIDITY 32.0 APPLICABLE LAW 33.0 AMENDMENT 34.0 LIMITATION 35.0 TAXES 35.1 Inclusion of Taxes in Price 35.2 Litigation 35.3 Rebates 36.0 FOREIGN PROCUREMENT OFFSET 37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE 37.1 Entire Agreement 37.2 Incorporated By Reference 37.3 Order of Precedence 37.4 Disclaimer iv AMENDMENT AMEND NUMBER DESCRIPTION DATE APPROVAL - ------ ----------- ---- -------- v GENERAL TERMS AGREEMENT RELATING TO BOEING PRODUCTS THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of (DATE), by and between CORY COMPONENTS, a California corporation, with its principal office in El Segundo, CA, ("Seller"), and The Boeing Company, a Delaware corporation with its principal office in Seattle, Washington acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS A. Boeing produces commercial airplanes. B. Seller manufactures and sells certain goods and services for use in the production and support of such aircraft. C. Seller desires to sell and Boeing desires to purchase certain of Seller's goods and services in accordance with the terms set forth in this Agreement. Now therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: 1 AGREEMENTS 1.0 DEFINITIONS The definitions set forth below shall apply to the following terms as they are used in this Agreements, any Order, or any related Special Business Provisions ("SBP"). Words importing the singular number shall also include the plural number and vice versa. (a) "Customer" means any owner, operator or user of Products and any other individual, partnership, corporation or entity which has or acquires any interest in the Products from, through or under Boeing. (b) "Derivative" means any new model airplane designated by Boeing as a derivative of an existing Model airplane and which: (1) has the same number of engines as the existing model airplane; (2) utilizes essentially the same aerodynamic and propulsion design, major assembly components, and systems as the existing model airplane and (3) achieves other payload/range combinations by changes in body length, engine thrust, or variations in certified gross weight. (c) "Drawing" means an automated or manual depiction of graphics or technical information representing a Product or any part thereof and which includes the parts list and specifications relating thereto. (d) "End Item Assembly" means any Product which is described by a single part number and which is comprised of more than one component part. (e) "FAA" means the United States Federal Aviation Administration or any successor agency thereto. (f) "FAR" means the Federal Acquisition Regulations in effect on the date of this Agreement. (g) "Material Representative" means the individual designated from time to time, by Boeing as being primarily responsible for interacting with Seller regarding this Agreement and any Order. (h) "Order" means each purchase order issued by Boeing and accepted by Seller under the terms of this Agreement. Each Order is a contract between Boeing and Seller. (i) "Product" means goods, including components and parts thereof, services, documents, data, software, software documentation and other information or items furnished or to be furnished to Boeing under any Order, including Tooling except for Rotating Use Tools. (j) "Purchased on Assembly Production Detail Part (POA)" means a component part of an End Item Assembly. (k) "Shipset" means the total quantity of a given part number or material necessary for production of one airplane. 2 (l) "Spare" means any Product, regardless of whether the Product is an End Item Assembly or a Purchased on Assembly Production Detail Part, which is intended for use or sale as a spare part or a production replacement. (m) "Tooling" means all tooling, as defined in Boeing Document M31-24, "Boeing Suppliers Tooling Manual," and/or described on any Order, including but not limited to Boeing-Use Tooling, Supplier-Use Tooling and Common-Use Tooling as defined in Boeing Document D6-49004, "Operations General Requirements for Suppliers," and Rotating-Use Tooling as defined in Boeing Document M31-13, "Accountability of Inplant/Outplant Special (Contract) Tools." For purposes of this Agreement, in the documents named in this subparagraph, the term "Supplier Use Tooling" shall be changed to Seller Use Tooling. 2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS 2.1 ISSUANCE OF ORDERS Boeing may issue Orders to Seller from time to time. Each Order shall contain a description of the Products ordered, a reference to the applicable specifications and Drawings, the quantities and prices, the delivery schedule, the terms and place of delivery and any special conditions. Each Order which incorporates this Agreement shall be governed by and be deemed to include the provisions of this Agreement. Purchase Order Terms and Conditions, Form D1-4100-4045, Form P252T and any other purchase order terms and conditions which may conflict with this Agreement, do not apply to the Orders. 2.2 ACCEPTANCE OF ORDERS Each Order is Boeing's offer to Seller and acceptance is strictly limited to its terms. Boeing will not be bound by and specifically objects to any term or condition which is different from or in addition to the provisions of the Order, whether or not such term or condition will materially alter the Order. Seller's commencement of performance or acceptance of the Order in any manner shall conclusively evidence Seller's acceptance of the Order as written. Boeing may revoke any Order prior to Boeing's receipt of Seller's written acceptance or Seller's commencement of performance. 2.3 WRITTEN AUTHORIZATION TO PROCEED Boeing's Material Representative may give written authorization to Seller to commence performance before Boeing issues an Order. If Boeing in its written authorization specifies that an Order will be issued, Boeing and Seller shall proceed as if an Order had been issued. This Agreement, the applicable SBP and the terms stated in the written authorization shall be deemed to be a part of Boeing's offer and the parties shall promptly agree on any open Order terms. If Boeing does not specify in its written authorization that an Order shall be issued, Boeing's obligation is strictly limited to the terms of the written authorization. For purposes of this Section 2.3 only, written authorization includes electronic transmission chosen by Boeing. 3 If Seller commences performance before an Order is issued or without receiving Boeing's prior authorization to proceed, such performance shall be at Seller's expense. 2.4 REJECTION OF PURCHASE ORDER Any rejection by Seller of an Order shall specify the reasons for rejection and any changes or additions that would make the Order acceptable to Seller; provided, however, that Seller may not reject any Order for reasons inconsistent with the provisions of this Agreement or the applicable SBP. 3.0 TITLE AND RISK OF LOSS Title to and risk of any loss of or damage to the Products shall pass from Seller to Boeing at the F.O.B. point as specified in the applicable Order, except for loss or damage thereto resulting from Seller's fault or negligence. Passage of title on delivery does not constitute Boeing's acceptance of Products. 4.0 DELIVERY 4.1 REQUIREMENTS Deliveries shall be strictly in accordance with the quantities, the schedule and other requirements specified in the applicable Order. Seller may not make early or partial deliveries without Boeing's prior written authorization. Deliveries which fail to meet Order requirements may be returned to Seller at Seller's expense. 4.2 DELAY Seller shall notify Boeing immediately, of any circumstances that may cause a delay in delivery, stating the estimated period of delay and the reasons therefor. If requested by Boeing, Seller shall use additional effort, including premium effort, and shall ship via air or other expedited routing to avoid or minimize delay to the maximum extent possible. All additional costs resulting from such premium effort or premium transportation shall be borne by Seller with the exception of such costs attributable to delays caused directly by Boeing. Nothing herein shall prejudice any of the rights or remedies provided to Boeing in the applicable Order or by law. 4.3 NOTICE OF LABOR DISPUTES Seller shall immediately notify Boeing of any actual or potential labor dispute that may disrupt the timely performance of an Order. Seller shall include the substance of this Section 4.3, including this sentence, in any subcontract relating to an Order if a labor dispute involving the subcontractor would have the potential to delay the timely performance of such Order. Each subcontractor, however, shall only be required to give the necessary notice and information to its next higher-tier subcontractor. 5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES 5.1 REVIEW At Boeing's request, Seller shall provide at Boeing's facility or at a place designated by Boeing, a review explaining the status of the Order, actions taken or planned relating to the Order and any other relevant information. Nothing herein may be construed as a waiver of Boeing's rights to proceed against Seller because of any delinquency. BCAG CONTRACT 07-01-95 4 Boeing's authorized representatives may enter Seller's plant at all reasonable times to conduct preliminary inspections and tests of the Products and work-in-process. Seller shall include in its subcontracts issued in connection with an Order a like provision giving Boeing the right to enter the premises of Seller's subcontractors. When requested by Boeing, Seller shall accompany Boeing to Seller's subcontractors. 5.2 RESIDENT REPRESENTATIVES Boeing may in its discretion and for such periods as it deems necessary assign resident personnel at Seller's facilities. Seller shall furnish, free of charge, all office space, secretarial service and other facilities and assistance reasonably required by Boeing's representatives at Seller's plant. The resident team will function under the guidance of Boeing's manager. The resident team will provide communication and coordination to ensure timely performance of the Order. Boeing's resident team shall be allowed access to all work areas, Order status reports and management review necessary to assure timely performance and conformance with the requirements of each Order. Notwithstanding such assistance, Seller remains solely responsible for performing in accordance with each Order. 6.0 INVOICE AND PAYMENT Unless otherwise provided in the applicable Order, invoicing and payment shall be in accordance with SBP Section 7.0. 7.0 PACKING AND SHIPPING Seller shall (a) prepare for shipment and suitably pack all Products to prevent damage or deterioration, (b) where Boeing has not identified a carrier, secure lowest transportation rates, (c) comply with the appropriate carrier tariff for the mode of transportation specified by Boeing and (d) comply with any special instructions stated in the applicable Order. Boeing shall pay no charges for preparation, packing, crating or cartage unless stated in the applicable Order. Unless otherwise directed by Boeing, all standard routing shipments forwarded on one day must be consolidated. Each container must be consecutively numbered and marked as set forth below. Container and Order numbers must be indicated on the applicable bill of lading. Two copies of the packing sheets must be attached to the No. 1 container of each shipment and one copy in each individual container. Each pack sheet must include as a minimum the following: a) Seller's name, address and phone number; b) Order and item number; c) ship date for the Products; d) total quantity shipped and quantity in each container, if applicable; e) legible pack slip number; f) nomenclature; g) unit of measure; h) ship to if other than Boeing; i) warranty data and certification, as applicable; j) rejection tag, if applicable; k) Seller's certification that Products comply with Order requirements; and, l) identification of optional material used, if applicable. Products sold F.O.B. place of shipment must be forwarded collect. Seller may not make any declaration concerning the value of the Products shipped, except on Products where the tariff rating or rate depends on the released or declared value, and in such event the value shall be released or declared at the maximum value for the lowest tariff rating or rate. 5 The following markings shall be included on each unit container: a) Seller's name; b) Seller's part number, if applicable; c) Boeing part number, if applicable; d) part nomenclature; e) Order number; f) quantity of Products in container; g) unit of measure; h) serial number, if applicable; i) date (quarter/year) identified as assembly or rubber cure date, if applicable; j) precautionary handling instructions or marking as required. In addition, the following markings/labels shall be included on each shipping container: a) Name and address of consignee; b) Name and address of consigner; c) Order number; d) Part number as shown on the Order; e) Quantity of Products in container; f) Unit of measure; g) Box number; h) Total number of boxes in shipment; and, i) Precautionary handling, labeling or marking as required. 8.0 QUALITY ASSURANCE, INSPECTION, REJECTION, & ACCEPTANCE 8.1 CONTROLLING DOCUMENT The controlling quality assurance document for Orders shall be as set forth in the SBP Section 4.0. 8.2 SELLER'S INSPECTION Seller shall inspect or otherwise verify that all Products and components thereof, including those procured from or furnished by subcontractors or Boeing, comply with the requirements of the Order prior to shipment to Boeing or Customer. Seller shall be responsible for all tests and inspections of the Product and any component thereof during receiving, manufacture and Seller's final inspection. Seller shall include on each packing sheet a certification that the Products comply with the requirements of the Order. 8.2.1 SELLER'S DISCLOSURE Seller will immediately notify Boeing when discrepancies in Seller's processes or Product are discovered or suspected for Products Seller has delivered. 8.3 BOEING'S INSPECTION AND REJECTION Unless otherwise specified on an Order, Products shall be subject to final inspection and acceptance by Boeing at destination, notwithstanding any payment or prior inspection. Boeing may reject any Product which does not strictly conform to the requirements of the applicable Order. Boeing shall by notice, rejection tag or other communication notify Seller of such rejection. Whenever possible, Boeing may coordinate with Seller prior to disposition of the rejected Product(s), however, Boeing shall retain final disposition authority with respect to all rejections. At Seller's risk and expense, all such Products will be returned to Seller for immediate repair, replacement or other correction and redelivery to Boeing; provided, however, that with respect to any or all of such Products and at Boeing's election and at Seller's risk and expense, Boeing may: (a) hold, retain, or return such Products without permitting any repair, replacement or other correction by Seller; (b) hold or retain such Products for repair by Seller or, at Boeing's election, for repair by Boeing with such assistance from Seller as Boeing may require; (c) hold such Products until Seller has delivered conforming replacements for such Products; (d) hold such Products until conforming replacements are obtained from a third party; (e) return such Products with instructions to Seller as to whether the Products shall be repaired or replaced and as to the 6 manner of redelivery or (f) return such Products with instructions that they be scrapped. Upon final disposition by Boeing that the non-conforming Product(s) are not subject to repair and prior to the Products being scrapped. Seller shall render the Product(s) unusable. Seller shall also maintain, pursuant to their quality assurance system, records certifying destruction of the applicable Products. Said certification shall state the method and date of mutilation and destruction of the subject Product(s). Boeing shall have the right to review and inspect these records at any time it deems necessary. Failure to comply with these requirements shall be a material breach of this Agreement and grounds for default pursuant to GTA Section 13.0. All repair, replacement and other corrections and redelivery shall be completed within such time as Boeing may require. All costs and expenses, loss of value and any other damages incurred as a result of or in connection with nonconformance and repair, replacement or other correction may be recovered from Seller by an equitable price reduction, set-off or credit against any amounts that may be owed to Seller under the applicable Order or otherwise. Boeing may revoke its acceptance of any Products and have the same rights with regard to the Products involved as if it had originally rejected them. 8.4 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT GOVERNMENT AGENCY INSPECTION Representatives of Boeing, the FAA or any equivalent government agency may inspect and evaluate Seller's plant including, but not limited to, Seller's and subcontractor's facilities, systems, data, equipment, inventory holding areas, procedures, personnel, testing, and all work- in-process and completed Products. For purposes of this Section 8.4, equivalent government agency shall mean those governmental agencies so designated by the FAA or those agencies within individual countries which maintain responsibility for assuring aircraft airworthiness. 8.5 RETENTION OF RECORDS Quality assurance records shall be maintained on file at Seller's facility and available to Boeing's authorized representatives. Seller shall retain such records for a period of not less than seven (7) years from the date of final payment under the applicable Order. 8.6 SOURCE INSPECTION If an Order contains a notation that "100% Source Inspection" is required, the Products shall not be packed for shipment until they have been submitted to Boeing's quality assurance representative for inspection. Both the packing list and Seller's invoice must reflect evidence of this inspection. 8.7 LANGUAGE FOR TECHNICAL INFORMATION All reports, drawings and other technical information submitted to Boeing for review or approval shall be in English and shall employ the units of measure customarily used by Boeing in the U.S.A. 7 9.0 EXAMINATION OF RECORDS Seller shall maintain complete and accurate records showing the sales volume of all Products. Such records shall support all services performed, allowances claimed and costs incurred by Seller in the performance of each Order, including but not limited to those factors which comprise or affect direct labor hours, direct labor rates, material costs, burden rates and subcontracts. Such records and other data shall be capable of verification through audit and analysis by Boeing and be available to Boeing at Seller's facility for Boeing's examination and audit at all reasonable times from the date of the applicable Order until three (3) years after final payment under such Order. Seller shall provide assistance to interpret such data if requested by Boeing. Such examination shall provide Boeing with complete information regarding Seller's performance for use in price negotiations with Seller relating to existing or future orders for Products, including but not limited to negotiation of equitable adjustments for changes and termination/obsolescence claims pursuant to GTA Section 10.0. Boeing shall treat all information disclosed under this Section as confidential. 10.0 CHANGES 10.1 GENERAL Boeing's Material Representative may at any time by written change order make changes within the general scope of an Order in any one or more of the following: drawings, designs, specifications, shipping, packing, place of inspection, place of delivery place of acceptance, adjustments in quantities, adjustments in delivery schedules, or the amount of Boeing furnished material. Seller shall proceed immediately to perform the Order as changed. If any such change causes an increase or decrease in the cost of or the time required for the performance of any part of the work, whether changed or not changed by the change order, an equitable adjustment shall be made in the price of or the delivery schedule for those Products affected, and the applicable Order shall be modified in writing accordingly. Any claim by Seller for adjustment under this Section 10.1 must be received by Boeing in writing no later than (60) days from the date of receipt by Seller of the written change order or within such further time as the parties may agree in writing or such claim shall be deemed waived. Nothing in this Section 10.1 shall excuse Seller from proceeding with an Order as changed, including failure of the parties to agree on any adjustment to be made under this Section 10.1. If Seller considers that the conduct of any of Boeing's employees has constituted a change hereunder, Seller shall immediately notify Boeing's Material Representative in writing as to the nature of such conduct and its effect on Seller's performance. Pending direction from Boeing's Material Representative, Seller shall take no action to implement any such change. 10.2 MODEL MIX In the event any Derivative aircraft(s) is introduced by Boeing, Boeing may (but is not obligated to) direct Seller within the scope of the applicable Order and in accordance with the provisions of GTA Section 10.0 to supply Boeing's requirements for Products for such Derivative aircraft(s) which correspond to those Products being produced under the applicable Order. 8 11.0 PRODUCT ASSURANCE Boeing's acceptance of any Product does not alter or affect the obligations of Seller or the rights of Boeing and its customers under the document referenced in the SBP Section 6.0 or as provided by law. 12.0 TERMINATION FOR CONVENIENCE 12.1 BASIS FOR TERMINATION; NOTICE Boeing may, from time to time and at Boeing's sole discretion, terminate all or part of any Order issued hereunder, by written notice to Seller. Any such written notice of termination shall specify the effective date and the extent of any such termination. 12.2 TERMINATION INSTRUCTIONS On receipt of a written notice of termination pursuant to GTA Section 12.1, unless otherwise directed by Boeing, Seller shall: A. Immediately stop work as specified in the notice; B. Immediately terminate its subcontracts and purchase orders relating to work terminated; C. Settle any termination claims made by its subcontractors or suppliers; provided, that Boeing shall have approved the amount of such termination claims prior to such settlement; D. Preserve and protect all terminated inventory and Products; E. At Boeing's request, transfer title (to the extent not previously transferred) and deliver to Boeing or Boeing's designee all supplies and materials, work-in-process. Tooling and manufacturing drawings and data produced or acquired by Seller for the performance of this Agreement and any Order, all in accordance with the terms of such request; F. Take all reasonable steps required to return, or at Boeing's option and with prior written approval to destroy, all Boeing Proprietary Information and Items in the possession, custody or control of Seller; G. Take such other action as, in Boeing's reasonable opinion, may be necessary, and as Boeing shall direct in writing, to facilitate termination of this Order; and H. Complete performance of the work not terminated. 12.3 SELLER'S CLAIM If Boeing terminates an Order in whole or in part pursuant to Section 12.1 above, Seller shall have the right to submit a written termination claim to Boeing in accordance with the terms of this Section 12.3. Such termination claim shall be submitted to Boeing not later than six (6) months after Seller's receipt of the termination notice and shall be in the form prescribed by Boeing. Such claim must contain sufficient detail to explain the amount claimed, including detailed inventory schedules and a detailed breakdown of all costs claimed separated into categories ( e.g., materials, purchased parts, finished components, labor, burden, general and administrative), and to explain the basis for allocation of all other costs. Seller shall be entitled to be compensated in accordance with and to the extent allowed under the terms of FAR 52-249-2(e)-(m) excluding (i), (as published in 48 CFR Section 52.249-2) which is incorporated herein by this reference except "Government" and "Contracting Officer" shall mean Boeing, "Contractor" shall mean Seller and "Contract" shall mean Order. 9 12.4 FAILURE TO SUBMIT A CLAIM Notwithstanding any other provision of this Section 12.0, if Seller fails to submit a termination claim within the time period set forth above, Seller shall be barred from submitting a claim and Boeing shall have no obligation for payment to Seller under this Section 12.0 except for those Products previously delivered and accepted by Boeing. 12.5 PARTIAL TERMINATION Any partial termination of an Order shall not alter or affect the terms and conditions of the Order or any Order with respect to Products not terminated. 12.6 PRODUCT PRICE Termination under any of the above paragraphs shall not result in any change to unit prices for Products not terminated. 12.7 EXCLUSIONS OR DEDUCTIONS The following items shall be excluded or deducted from any claim submitted by Seller: A. All unliquidated advances or other payments made by Boeing to Seller pursuant to a terminated Order; B. Any claim which Boeing has against Seller; C. The agreed price for scrap allowance; E. Except for normal spoilage and any risk of loss assumed by Boeing, the agreed fair value of property that is lost, destroyed, stolen or damaged. 12.8 PARTIAL PAYMENT/PAYMENT Payment, if any, to be paid under this Section 12.0 shall be made thirty (30) days after settlement between the parties or as otherwise agreed to between the parties. Boeing may make partial payments and payments against costs incurred by Seller for the terminated portion of the Order, if the total of such payments does not exceed the amount to which Seller would be otherwise entitled. If the total payments exceed the final amount determined to be due, Seller shall repay the excess to Boeing upon demand. 12.9 SELLER'S ACCOUNTING PRACTICES Boeing and Seller agree that Seller's "normal accounting practices" used in developing the price of the Product(s) shall also be used in determining the allocable costs at termination. For purposes of this Section 12.9, Seller's "normal accounting practices" refers to Seller's method of charging costs as either a direct charge, overhead expense, general administrative expense, etc. 12.10 RECORDS Unless otherwise provided in this Agreement or by law, Seller shall maintain all records and documents relating to the terminated portion of the Order for three (3) years after final settlement of Seller's termination claim. 10 13.0 EVENTS OF DEFAULT AND REMEDIES 13.1 EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an "Event of Default": A. Any failure by Seller to deliver, when and as required by this Agreement or any Order, any Product, except as provided in GTA Section 14.0; or B. Any failure by Seller to provide an acceptable Assurance of Performance within the time specified in GTA Section 17.0, or otherwise in accordance with applicable law; or, C. Any failure by Seller to perform or comply with any obligation set forth in GTA Section 20.0; or D. Seller is or has participated in the sale, purchase or manufacture of airplane parts without the required approval of the FAA. E. Any failure by Seller to perform or comply with any obligation (other than as described in the foregoing Sections 13.1.A, 13.1.B, 13.1.C and 13.1.D) set forth in this Agreement and such failure shall continue unremedied for a period of thirty (30) days or more following receipt by Seller of notice from Boeing specifying such failure; or F. (a) the suspension, dissolution or winding-up of Seller's business, (b) Seller's insolvency, or its inability to pay debts, or its nonpayment of debts, as they become due, (c) the institution of reorganization, liquidation or other such proceedings by or against Seller or the appointment of a custodian, trustee, receiver or similar Person for Seller's properties or business, (d) an assignment by Seller for the benefit of its creditors, or (e) any action of Seller for the purpose of effecting or facilitating any of the foregoing. 13.2 REMEDIES If any Event of Default shall occur: A. CANCELLATION Boeing may, by giving written notice to Seller, immediately cancel this Agreement and/or any Order, in whole or in part, and Boeing shall not be required after such notice to accept the tender by Seller of any Products with respect to which Boeing has elected to cancel this Agreement. B. COVER Boeing may manufacture, produce or provide, or may engage any other persons to manufacture, produce or provide, any Products in substitution for the Products to be delivered or provided by Seller hereunder with respect to which this Agreement or any Order has been cancelled and, in addition to any other remedies or damages available to Boeing hereunder or at law or in equity, Boeing may recover from Seller the difference between the price for each such Product and the aggregate expense, including, without limitation, administrative and other indirect costs, paid or incurred by Boeing to manufacture, produce or provide, or engage other persons to manufacture, produce or provide, each such Product. C. REWORK OR REPAIR Boeing may rework or repair any Product in accordance with GTA Section 8.3; 11 D. SETOFF Boeing shall, at its option, have the right to set off against and apply to the payment or performance of any obligation, sum or amount owing at any time to Boeing hereunder or under any Order, all deposits, amounts or balances held by Boeing for the account of Seller and any amounts owed by Boeing to Seller, regardless of whether any such deposit, amount, balance or other amount or payment is then due and owing. E. TOOLING AND OTHER MATERIALS As compensation for the additional costs which Boeing will incur as a result of the actual physical transfer of production capabilities from Seller to Boeing or Boeing's designee, Seller shall upon the request of Boeing, transfer and deliver to Boeing or Boeing's designee title to any or all (i) Tooling, (ii) Boeing-furnished material, (iii) raw materials, parts, work-in-process, incomplete or completed assemblies, and all other Products or parts thereof in the possession or under the effective control of Seller or any of its subcontractors (iv) Proprietary Information and Materials of Boeing including without limitation planning data, drawings and other Proprietary Information and Materials relating to the design, production, maintenance, repair and use of Tooling, in the possession or under the effective control of Seller or any of its subcontractors, in each case free and clear of all liens, claims or other rights of any person. Seller shall be entitled to receive from Boeing reasonable compensation for any item accepted by Boeing which has been transferred to Boeing pursuant to this Section 13.2.E (except for any item the price of which shall have been paid to Seller prior to such transfer); provided, however, that such compensation shall not be paid directly to Seller, but shall be accounted for as a setoff against any damages payable by Seller to Boeing as a result of any Event of Default. F. REMEDIES GENERALLY No failure on the part of Boeing in exercising any right or remedy hereunder, or as provided by law or in equity, shall impair, prejudice or constitute a waiver of any such right or remedy, or shall be construed as a waiver of any Event of Default or as an acquiescence therein. No single or partial exercise of any such right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. No acceptance of partial payment or performance of any of Seller's obligations hereunder shall constitute a waiver of any Event of Default or a waiver or release of payment or performance in full by Seller of any such obligation. All rights and remedies of Boeing hereunder and at law and in equity shall be cumulative and not mutually exclusive and the exercise of one shall not be deemed a waiver of the right to exercise any other. Nothing contained in this Agreement shall be construed to limit any right or remedy of Boeing now or hereafter existing at law or in equity. 12 14.0 EXCUSABLE DELAY If delivery of any Product is delayed by unforeseeable circumstances beyond the control and without the fault or negligence of Seller or of its suppliers or subcontractors (any such delay being hereinafter referred to as "Excusable Delay"), the delivery of such Product shall be extended for a period to be determined by Boeing after an assessment by Boeing of alternate work methods. Excusable Delays may include, but are not limited to, acts of God, war, riots, acts of government, fires, floods, epidemics, quarantine restrictions, freight embargoes, strikes or unusually severe weather, but shall exclude Seller's noncompliance with any rule, regulation or order promulgated by any governmental agency for or with respect to environmental protection. However, the above notwithstanding, Boeing expects Seller to continue production, recover lost time and support all schedules as established under this Agreement or any Order. Therefore, it is understood and agreed that (i) delays of less than two (2) days' duration shall not be considered to be Excusable Delays unless such delays shall occur within thirty (30) days preceding the scheduled delivery date of any Product and (ii) if delay in delivery of any Product is caused by the default of any of Seller's subcontractors or suppliers, such delay shall not be considered an Excusable Delay unless the supplies or services to be provided by such subcontractor or supplier are not obtainable from other sources in sufficient time to permit Seller to meet the applicable delivery schedules. If delivery of any Product is delayed by any Excusable Delay for more than three (3) months, Boeing may, without any additional extension, cancel all or part of any Order with respect to the delayed Products, and exercise any of its remedies in accordance with GTA Section 13.2 provided however, that Boeing shall not be entitled to monetary damages or specific performance to the extent Seller's breach is the result of an Excusable Delay. 15.0 SUSPENSION OF WORK Boeing may at any time, by written order to Seller, require Seller to stop all or any part of the work called for by this Agreement hereafter referred to as a "Stop Work Order" issued pursuant to this Section 15.0. On receipt of a Stop Work Order, Seller shall promptly comply with its terms and take all reasonable steps to minimize the occurrence of costs arising from the work covered by the Stop Work Order during the period of work stoppage. Within the period covered by the Stop Work Order (including any extension thereof) Boeing shall either (i) cancel the Stop Work Order or (ii) terminate or cancel the work covered by the Stop Work Order in accordance with the provisions of GTA Section 12.0 or 13.0. In the event the Stop Work Order is cancelled by Boeing or the period of the Stop Work Order (including any extension thereof) expires, Seller shall promptly resume work in accordance with the terms of this Agreement or any applicable Order. 16.0 TERMINATION OR CANCELLATION AND INDEMNITY AGAINST SUBCONTRACTOR CLAIMS Boeing shall not be liable for any loss or damage resulting from any termination pursuant to GTA Section 12.1, except as expressly provided in GTA Section 12.3 or any cancellation under GTA Section 13.0 except to the extent that such cancellation shall have been determined by Boeing and Seller to have been wrongful, in which case such wrongful cancellation shall be deemed a termination pursuant to GTA Section 12.1 and therefore shall be limited to the payment to Seller of the amount or amounts identified in GTA Section 13 12.3. As subcontractor claims are included in Seller's termination claim pursuant to GTA Section 12.3, Seller shall indemnify Boeing and hold Boeing harmless from and against (i) any and all claims, suits and proceedings against Boeing by any subcontractor or supplier of Seller in respect of any such termination and (ii) and any and all costs, expenses, losses and damages incurred by Boeing in connection with any such claim, suit or proceeding. 17.0 ASSURANCE OF PERFORMANCE A. SELLER TO PROVIDE ASSURANCE If Boeing determines, at any time or from time to time, that it is not sufficiently assured of Seller's full, timely and continuing performance hereunder, or if for any other reason Boeing has reasonable grounds for insecurity, Boeing may request, by notice to Seller, written assurance (hereafter an "Assurance of Performance") with respect to any specific matters affecting Seller's performance hereunder, that Seller is able to perform all of its respective obligations under this Agreement when and as specified herein. Each Assurance of Performance shall be delivered by Seller to Boeing as promptly as possible, but in any event no later than 15 calendar days following Boeing's request therefore and each Assurance of Performance shall be accompanied by any information, reports or other materials, prepared by Seller, as Boeing may reasonably request. Boeing may suspend all or any part of Boeing's performance hereunder until Boeing receives an Assurance of Performance from Seller satisfactory in form and substance to Boeing. B. MEETINGS AND INFORMATION Boeing may request one or more meetings with senior management or other employees of Seller for the purpose of discussing any request by Boeing for Assurance of Performance or any Assurance of Performance provided by Seller. Seller shall make such persons available to meet with representatives of Boeing as soon as may be practicable following a request for any such meeting by Boeing and Seller shall make available to Boeing any additional information, reports or other materials in connection therewith as Boeing may reasonably request. 18.0 RESPONSIBILITY FOR PROPERTY On delivery to Seller or manufacture or acquisition by it of any materials, parts, Tooling or other property, title to any of which is in Boeing, Seller shall assume the risk of and shall be responsible for any loss thereof or damage thereto. In accordance with the provisions of an Order, but in any event on completion thereof, Seller shall return such property to Boeing in the condition in which it was received except for reasonable wear and tear and except to the extent that such property has been incorporated in Products delivered under such Order or has been consumed in the normal performance of work under such Order. 19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS Seller warrants to Boeing that it has good title to all inventory, work-in-process, tooling and materials to be supplied by Seller in the performance of its obligations under any Order ("Inventory"), and that pursuant to the provisions of such Order, it will transfer to Boeing title to such Inventory, whether transferred separately or as part of any Product delivered under the Order, free of any liens, charges, encumbrances or rights of others. 14 20.0 PROPRIETARY INFORMATION AND ITEMS Boeing and Seller shall each keep confidential and protect from disclosure all (a) confidential, proprietary, and/or trade secret information; (b) tangible items containing, conveying, or embodying such information; and (c) tooling obtained from and/or belonging to the other in connection with this Agreement or any Order (collectively referred to as "Proprietary Information and Materials"). Boeing and Seller shall each use Proprietary Information and Materials of the other only in the performance of and for the purpose of this Agreement and/or any Order. Provided, however, that despite any other obligations or restrictions imposed by this Section 20.0, Boeing shall have the right to use and disclose of Seller's Proprietary Information and Materials for the purposes of testing, certification, use, sale, or support of any item delivered under this Agreement, an Order, or any airplane including such an item; and any such disclosure by Boeing shall, whenever appropriate, include a restrictive legend suitable to the particular circumstances. The restrictions on disclosure or use of Proprietary Information and Materials by Seller shall apply to all materials derived by Seller or others from Boeing's Proprietary Information and Materials. Upon Boeing's request at any time, and in any event upon the completion, termination or cancellation of this Agreement, Seller shall return all of Boeing's Proprietary Information and Materials, and all materials derived from Boeing's Proprietary Information and Materials to Boeing unless specifically directed otherwise in writing by Boeing. Seller shall not, without the prior written authorization of Boeing, sell or otherwise dispose of (as scrap or otherwise) any parts or other materials containing, conveying, embodying, or made in accordance with or by reference to any Proprietary Information and Materials of Boeing. Prior to disposing of such parts or materials as scrap, Seller shall render them unusable. Boeing shall have the right to audit Seller's compliance with this Section 20.0. Seller may disclose Proprietary Information and Materials of Boeing to its subcontractors as required for the performance of an Order, provided that each such subcontractor first assumes, by written agreement, the same obligations imposed upon Seller under this Section 20.0 relating to Proprietary Informations and Materials; and Seller shall be liable to Boeing for any breach of such obligation by such subcontractor. The provisions of this Section 20.0 are effective in lieu of, and will apply notwithstanding the absence of, any restrictive legends or notices applied to Proprietary Informations and Materials; and the provisions of this Section 20.0 shall survive the performance, completion, termination or cancellation of this Agreement or any Order. This Section 20.0 supersedes and replaces any and all other prior agreements or understandings between the parties to the extent that such agreements or understandings relate to Boeing's obligations relative to confidential, proprietary, and/or trade secret information, or tangible items containing, conveying, or embodying such information, obtained from Seller and related to any Product, regardless of whether disclosed to the receiving party before or after the effective date of this Agreement. 21.0 COMPLIANCE WITH LAWS 15 21.1 SELLER'S OBLIGATION Seller shall be responsible for complying with all laws, including, but not limited to, any statute, rule, regulation, judgment, decree, order, or permit applicable to its performance under this Agreement. Seller further agrees (1) to notify Boeing of any obligation under this Agreement which is prohibited under applicable environmental law, at the earliest opportunity but in all events sufficiently in advance of Seller's performance of such obligation so as to enable the identification of alternative methods of performance, and (2) to notify Boeing at the earliest possible opportunity of any aspect of its performance which becomes subject to additional environmental regulation or which Seller reasonably believes will become subject to additional regulation during the performance of this Agreement. 21.2 GOVERNMENT REQUIREMENTS If any of the work to be performed under this Agreement is performed in the United States, Seller shall, via invoice or other form satisfactory to Boeing, certify that the Products covered by the Order were produced in compliance with Sections 6, 7, and 12 of the Fair Labor Standards Act (29 U. S. C. 201-291), as amended, and the regulations and orders of the U. S. Department of Labor issued thereunder. In addition, the following Federal Acquisition Regulations are incorporated herein by this reference except "Contractor" shall mean "Seller": FAR 52.222-26 "Equal Opportunity" FAR 52.222-35 "Affirmative Action for Special Disabled and Vietnam Era Veterans" FAR 52.222-36 "Affirmative Action for Handicapped Workers". 22.0 INTEGRITY IN PROCUREMENT Boeing's policy is to maintain high standards of integrity in procurement. Boeing's employees must ensure that no favorable treatment compromises their impartiality in the procurement process. Accordingly, Boeing's employees must strictly refrain from soliciting or accepting any payment, gift, favor or thing of value which could improperly influence their judgement with respect to either issuing a Order or administering this Agreement. Consistent with this policy, Seller agrees not to provide or offer to provide any employees of Boeing any payment, gift, favor or thing of value for the purposes of improperly obtaining or rewarding favorable treatment in connection with any Order or this Agreement. Seller shall conduct its own procurement practices and shall ensure that its suppliers conduct their procurement practices consistent with these standards. If Seller has reasonable grounds to believe that this policy may have been violated, Seller shall immediately report such possible violation to the appropriate Director of Material or Ethics Advisor of Boeing. 23.0 INFRINGEMENT Seller shall indemnify, defend, and save Boeing and Customers harmless from all claims, suits, actions, awards (including but not limited to awards based on intentional infringement of patents known to Seller at the time of such infringement, exceeding actual damages, and/or including attorneys' fees and/or costs), liabilities, damages, costs and attorneys' fees related to the actual or alleged infringement of any United States or foreign intellectual property right (including but not limited to any right in a patent, copyright, industrial design or 16 semiconductor mask work, or based on misappropriation or wrongful use of information or documents) and arising out of the manufacture. sale or use of Products by Boeing or Customers. Boeing and/or Customers shall duly notify Seller of any such claim, suit or action; and Seller shall, at its own expense, fully defend such claim, suit or action on behalf of Boeing and/or Customers. Seller shall have no obligation under this Section 23.0 with regard to any infringement arising from: (i) Seller's compliance with formal specifications issued by Boeing where infringement could not be avoided in complying with such specifications or (ii) use or sale of Products in combination with other items when such infringement would not have occurred from the use or sale of those Products solely for the purpose for which they were designed or sold by Seller. For purposes of this Section 23.0 only, the term Customer shall not include the United States Government; and the term Boeing shall include The Boeing Company (Boeing) and all Boeing subsidiaries and all officers, agents, and employees of Boeing or any Boeing subsidiary. 24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS, AND TOOLING Seller hereby grants to Boeing an irrevocable, nonexclusive, paid-up worldwide license to practice and/or use, and license others to practice and/or use on Boeing's behalf, all of Seller's patents, copyrights, trade secrets (including, without limitation, designs, processes, drawings, technical data and tooling), industrial designs, semiconductor mask works, and tooling (collectively hereinafter referred to as "Licensed Property") related to the development, production, maintenance or repair of Products. Boeing hereafter retains all of the aforementioned license rights in Licensed Property, but Boeing hereby covenants not to exercise such rights except in connection with the making, having made, using and selling of Products or products of the same kind, and then only in the event of any of the following: a. Seller discontinues or suspends business operations or the production of any or all of the Products; b. Seller is acquired by or transfers any or all of its rights to manufacture any Product to any third party, whether or not related; c. Boeing cancels this Agreement or any Order for cause pursuant to GTA Section 13.0 herein; d. in Boeing's judgement it becomes necessary, in order for Seller to comply with the terms of this Agreement or any Order, for Boeing to provide support to Seller (in the form of design, manufacturing, or on-site personnel assistance) substantially in excess of that which Boeing normally provides to its suppliers; e. Seller's trustee in bankruptcy (or Seller as debtor in possession) fails to assume this Agreement and all Orders by formal entry of an order in the bankruptcy court within sixty (60) days after entry of an order for relief in a bankruptcy case of the Seller, or Boeing elects to retain its rights to Licensed Property under the bankruptcy laws; 17 f. Seller is at any time insolvent (whether measured under a balance sheet test or by the failure to pay debts as they come due) or the subject of any insolvency or debt assignment proceeding under state or nonbankruptcy law; or g. Seller voluntarily becomes a debtor in any case under bankruptcy law or, in the event an involuntary bankruptcy petition is filed against Seller, such petition is not dismissed within thirty (30) days. As a part of the license granted under this Section 24.0, Seller shall, at the written request of Boeing and at no additional cost to Boeing, promptly deliver to Boeing any and all Licensed Property considered by Boeing to be necessary to satisfy Boeing's requirements for Products and their substitutes. 25.0 NOTICES 25.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, mail, telex, teletype, telegram, facsimile, cable or other electronic transmission addressed to the respective party as set forth in the SBP Section 9.0. 25.2 EFFECTIVE DATE The date on which any such communication is received by the addressee is the effective date of such communication. 25.3 APPROVAL OR CONSENT With respect to all matters subject to the approval or consent of either party, such approval or consent shall be requested in writing and is not effective until given in writing. With respect to Boeing, authority to grant approval or consent is limited to Boeing's Material Representative. 26.0 PUBLICITY Seller will not, and will require that its subcontractors and suppliers of any tier will not, (i) cause or permit to be released any publicity, advertisement, news release, public announcement, or denial or confirmation of the same, in whatever form, regarding any Order or Products, or the program to which they may pertain, or (ii) use, or cause or permit to be used, the Boeing name or any Boeing trademark in any form of promotion or publicity without Boeing's prior written approval. 27.0 PROPERTY INSURANCE 27.1 INSURANCE Seller shall maintain continuously in effect a property insurance policy covering loss or destruction of or damage to all property in which Boeing does or could have an insurable interest pursuant to this Agreement, including but not limited to Tooling, Boeing-furnished property, raw materials, parts, work-in process, incomplete or completed assemblies and all other products or parts thereof, and all drawings, specifications, data and other materials relating to any of the foregoing in each case to the extent in the possession or under the effective care, custody or control of Seller, in the amount of full 18 replacement value thereof providing protection against all perils normally covered in an "all risk" property insurance policy (including without limitation fire, windstorm, explosion, riot, civil commotion, aircraft, earthquake, flood or other acts of God). Any such policy shall be in the form and with insurers acceptable to Boeing and shall (i) provide for payment of loss thereunder to Boeing, as loss payee, as its interests may appear and (ii) contain a waiver of any rights of subrogation against Boeing, its subsidiaries, and their respective directors, officers, employees and agents. 27.2 CERTIFICATE OF INSURANCE Prior to commencement of this Agreement, Seller shall provide to Boeing's Material Representative, for Boeing's review and approval, certificates of insurance reflecting full compliance with the requirements set forth in GTA Section 27.1. Such certificates shall be kept current and in compliance throughout the period of this Agreement and shall provide for thirty (30) days advanced written notice to Boeing's Material Representative in the event of cancellation, non- renewal or material change adversely affecting the interests of Boeing. 27.3 NOTICE OF DAMAGE OR LOSS Seller shall give prompt written notice to Boeing's Material Representative of the occurrence of any damage or loss to any property required to be insured herein. If any such property shall be damaged or destroyed, in whole or in part, by an insured peril or otherwise, and if no Event of Default shall have occurred and be continuing, then Seller may, upon written notice to Boeing, settle, adjust, or compromise any and all such loss or damage not in excess of Two Hundred Fifty Thousand Dollars ($250,000) in any one occurrence and Five Hundred Thousand Dollars ($500,000) in the aggregate. Seller may settle, adjust or compromise any other claim by Seller only after Boeing has given written approval, which approval shall not be unreasonably withheld. 28.0 RESPONSIBILITY FOR PERFORMANCE Seller shall be responsible for the requirements of this Agreement and any Order referencing this Agreement. Seller shall bear all risks of providing adequate facilities and equipment to perform each Order in accordance with the terms thereof. Seller shall include as part of its subcontracts those elements of the Agreement which protect Boeing's rights including but not limited to right of entry provisions, proprietary information and rights provisions and quality control provisions. In addition, Seller shall provide to its subcontractors sufficient information to clearly document that the work being performed by Seller's subcontractor is to facilitate performance under this Agreement or any Order. Sufficient information may include but is not limited to Order number, GTA number or the name of Boeing's Material Representative. No subcontracting by Seller shall relieve Seller of its obligation under the applicable Order. 28.1 SUBCONTRACTING Seller may not procure any Product, as defined in the applicable Order, from a third party in a completed or a substantially completed form without Boeing's prior written consent. 19 Where required by the requirements of the Order, no raw material and/or material process may be incorporated in a Product unless: (a) Seller uses an approved source or (b) Boeing has surveyed and qualified Seller's receiving inspection personnel and laboratories to test the specified raw materials an/or material process. No waiver of survey and qualification requirements will be effective unless granted by Boeing's Engineering and Quality Control Departments. Utilization of a Boeing-approved raw material source does not constitute a waiver of Seller's responsibility to meet all specification requirements. 28.2 RELIANCE Boeing's entering into this Agreement is in part based upon Boeing's reliance on Seller's ability, expertise and awareness of the intended use of the Products. Seller agrees that Boeing and Boeing's customers may rely on Seller as an expert, and Seller will not deny any responsibility or obligation hereunder to Boeing or Boeing's customers on the grounds that Boeing or Boeing's customers provided recommendations or assistance in any phase of the work involved in producing or supporting the Products, including but not limited to Boeing's acceptance of specifications, test data or the Products. 28.3 ASSIGNMENT Each Order shall inure to the benefit of and be binding on each of the parties hereto and their respective successors and assigns, provided however, that no assignment of any rights or delegation of any duties under such Order is binding on Boeing unless Boeing's written consent has first been obtained. Notwithstanding the above, Seller may assign claims for monies due or to become due under any Order provided that Boeing may recoup or setoff any amounts covered by any such assignment against any indebtedness of Seller to Boeing, whether arising before or after the date of the assignment or the date of this Agreement, and whether arising out of any such Order or any other agreement between the parties. Boeing may settle all claims arising out of any Order, including termination claims, directly with Seller. Boeing may unilaterally assign any rights or title to property under the Order to any wholly- owned subsidiary of The Boeing Company. 29.0 NON-WAIVER Boeing's failure at any time to enforce any provision of an Order does not constitute a waiver of such provision or prejudice Boeing's right to enforce such provision at any subsequent time. 30.0 HEADINGS Section and Section headings used in this Agreement are for convenient reference only and do not affect the interpretation of the Agreement. 31.0 PARTIAL INVALIDITY If any provision of any Order is or becomes void or unenforceable by force or operation of law, the other provisions shall remain valid and enforceable. 20 32.0 APPLICABLE LAW; JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance with, the law as set forth in SBP Section 5.0. 33.0 AMENDMENT Oral statements and understandings are not valid or binding. Except as otherwise provided in GTA Section 10.0 and SBP Section 12.0, no Order may be changed or modified except by a writing signed by Seller and Boeing's Material Representative. 34.0 LIMITATION Seller may not (except to provide an inventory of Products to support delivery acceleration and to satisfy reasonable replacement and Spares requirements) manufacture or fabricate Products or procure any goods in advance of the reasonable flow time required to comply with the delivery schedule in the applicable Order. Notwithstanding any other provision of an Order, Seller is not entitled to any equitable adjustment or other modification of such Order for any manufacture, fabrication, or procurement of Products not in conformity with the requirements of the Order, unless Boeing's written consent has first been obtained. Nothing in this Section 34.0 shall be construed as relieving Seller of any of its obligations under the Order. 35.0 TAXES 35.1 INCLUSION OF TAXES IN PRICE All taxes, including but not limited to federal, state and local income taxes, value added taxes, gross receipt taxes, property taxes, and custom duties taxes are deemed to be included in the Order price, except applicable sales or use taxes on sales to Boeing ("Sales Taxes") for which Boeing has not supplied a valid exemption certificate or unless otherwise indicated on the applicable Order. 35.2 LITIGATION In the event that any taxing authority has claimed or does claim payment for Sales Taxes, Seller shall promptly notify Boeing, and Seller shall take such action as Boeing may direct to pay or protest such taxes or to defend against such claim. The actual and direct expenses, without the addition of profit and overhead, of such defense and the amount of such taxes as ultimately determined as due and payable shall be paid directly by Boeing or reimbursed to Seller. If Seller or Boeing is successful in defending such claim, the amount of such taxes recovered by Seller, which had previously been paid by Seller and reimbursed by Boeing or paid directly by Boeing, shall be immediately refunded to Boeing. 35.3 REBATES If any taxes paid by Boeing are subject to rebate or reimbursement, Seller shall take the necessary actions to secure such rebates or reimbursement and shall promptly refund to Boeing any amount recovered. 21 36.0 FOREIGN PROCUREMENT OFFSET With respect to work covered by the Order, Seller shall use its best efforts to cooperate with Boeing in the fulfillment of any foreign offset program obligation that Boeing may have accepted as a condition of the sale of Boeing's products. In the event that Seller solicits bids or proposals for, or procures or offers to procure any goods or services relating to the work covered by an Order from any source outside of the United States, Boeing shall be entitled, to the exclusion of all others, to all industrial benefits and other "offset" credits which may result from such solicitations, procurements or offers to procure. Seller agrees to take any actions that may be required on its part to assure that Boeing receives such credits. 37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE 37.1 ENTIRE AGREEMENT The Order sets forth the entire agreement, and supersedes any and all other prior agreements understandings and communications between Boeing and Seller related to the subject matter of an Order. The rights and remedies afforded to Boeing or Customers pursuant to any provisions of an Order are in addition to any other rights and remedies afforded by any other provisions of this Order, by law or otherwise. 37.2 INCORPORATED BY REFERENCE In addition to the documents previously incorporated herein by reference, the documents listed below are by this reference made a part of this Agreement: A. Engineering Drawing by Part Number and Related Outside Production Specification Plan (OPSP). B. Any other exhibits or documents agreed to by the parties to be a part of this Agreement. 37.3 ORDER OF PRECEDENCE In the event of a conflict or inconsistency between any of the terms of the following documents, the following order of precedence shall control: A. SBP (excluding the Administrative Agreement identified in E below) B. This General Terms Agreement (excluding the documents identified in D and F below) C. Order (excluding the documents identified in A and B above) D. Engineering Drawing by Part Number and, if applicable, related Outside Production Specification Plan (OPSP). E. Administrative Agreement (If Applicable) F. Any other exhibits or documents the parties agree shall be part of the Agreement. 22 37.4 DISCLAIMER Unless otherwise specified on the face of the applicable Order, any CATIA Dataset or translation thereof (each or collectively "Data) furnished by Boeing is furnished as an accommodation to Seller. It is the Seller's responsibility to compare such Data to the comparable two dimensional computer aided design drawing to confirm the accuracy of the Data. BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL WARRANTIES AND LIABILITIES OF BOEING AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY ARISING FROM COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED UPON TORT, WHETHER OR NOT ARISING FROM BOEING'S NEGLIGENCE, AND (D) ANY RECOVERY BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. EXECUTED in duplicate as of the date and year first written above by the duly authorized representatives of the parties. THE BOEING COMPANY CORY COMPONENTS by and through its division Boeing Commercial Airplane Group Name: /s/ illegible Name: -------------------------- --------------------------- Title: Buyer Title: -------------------------- --------------------------- Date: Dec. 1, 95 Date: --------------------------- -------------------------- 23 37.4 DISCLAIMER Unless otherwise specified on the face of the applicable Order, any CATIA Dataset or translation thereof (each or collectively "Data) furnished by Boeing is furnished as an accommodation to Seller. It is the Seller's responsibility to compare such Data to the comparable two dimensional computer aided design drawing to confirm the accuracy of the Data. BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAlVES, ALL WARRANTIES AND LIABILITIES OF BOEING AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, (8) ANY IMPLIED WARRANTY ARISING FROM COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED UPON TORT, WHETHER OR NOT ARISING FROM BOEING'S NEGLIGENCE, AND (D) ANY RECOVERY BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. EXECUTED in duplicate as of the date and year first written above by the duly authorized representatives of the parties. THE BOEING COMPANY CORY COMPONENTS by and through its division Boeing Commercial Airplane Group Name: /s/ illegible Name: -------------------------- --------------------------- Title: Buyer Title: -------------------------- --------------------------- Date: Dec. 1, 95 Date: --------------------------- -------------------------- 23 EX-10.15-1 50 EXHIBIT 10.15.1 Exhibit 10.15 SPECIAL BUSINESS PROVISIONS SPECIAL BUSINESS PROVISIONS between THE BOEING COMPANY and CORY COMPONENTS Number 6-5752-0004 BCAG CONTRACT 11/30/95 SPECIAL BUSINESS PROVISIONS SPECIAL BUSINESS PROVISIONS TABLE OF CONTENTS Section Item - ------- ---- 1.0 DEFINITIONS 2.0 PURCHASE ORDER NOTE 3.0 PRICES 3.1 Product Pricing 3.2 Manufacturing Configuration Baseline 3.3 Packaging 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT 5.0 APPLICABLE LAW/JURISDICTION 6.0 PRODUCT ASSURANCE 7.0 PAYMENT 7.1 Recurring Cost 7.2 Non-Recurring Cost 8.0 ACCEL/DECEL AT NO COST 9.0 NOTICES 9.1 Addresses 10.0 OBLIGATION TO PURCHASE AND SELL 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY 12.0 CHANGES 12.1 Changes to the Statement of Work 12.2 Computation of Equitable Adjustment 12.3 Obsolescence 12.4 Change Absorption 12.5 Planning Schedule 12.6 Value Engineering 12.7 Reduction in Quantity to be Delivered 13.0 SPARES AND OTHER PRICING 13.1 Spares 13.2 Short Flow Production Requirements 13.3 Tooling BCAG CONTRACT 11/30/95 ii SPECIAL BUSINESS PROVISIONS TABLE OF CONTENTS Section Item - ------- ---- 13.4 Pricing of Boeing's Supporting Requirements 13.5 Pricing of Requirements for Modification or Retrofit 13.6 Similar to Pricing 14.0 STATUS REPORTS/REVIEWS 15.0 FOREIGN PROCUREMENT REPORT 16.0 SUPPLIER FURNISHED MATERIAL 17.0 ASSIGNMENT 18.0 INVENTORY AT CONTRACT COMPLETION 19.0 OWNERSHIP OF INTELLECTUAL PROPERTY 19.1 Technical Work Product 19.2 Inventions and Patents 19.3 Works of Authorship and Copyrights 19.4 Pre-Existing Inventions and Works of Authorship 20.0 ADMINISTRATIVE AGREEMENT 21.0 GUARANTEED WEIGHT REQUIREMENTS 22.0 SUPPLIER DATA REQUIREMENTS 23.0 DEFERRED PAYMENT TERMS 24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS Attachment 1 Work Statement and Pricing Attachment 2 Foreign Procurement Report Attachment 3 Rates and Factors Attachment 4 Boeing AOG Coverage Attachment 5 Boeing AOG/Critical Shipping Notification Attachment 6 Supplier Data Requirements List Customer Support Attachment 7 Supplier Data Requirements List Engineering BCAG CONTRACT 11/30/95 iii SPECIAL BUSINESS PROVISIONS AMENDMENTS AMEND NUMBER DESCRIPTION DATE APPROVAL - ------ ----------- ---- -------- BCAG CONTRACT 11/30/95 iv SPECIAL BUSINESS PROVISIONS SPECIAL BUSINESS PROVISIONS THESE SPECIAL BUSINESS PROVISIONS are entered into as of DATE by and between CORY COMPONENTS, a California corporation with its principal office in El Segundo, CA ("Seller"), and The Boeing Company, a Delaware corporation with an office in Seattle, Washington acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS A. Boeing and Seller entered into a General Terms Agreement GTA #6-5752-0002 dated (DATE) (the "Agreement") which is incorporated herein and made a part hereof by this reference, for the sale by Seller and purchase by Boeing of Products. B. Boeing and Seller desire to include these special business provisions ("SBP") relating to the sale by Seller and purchase by Boeing of Products. Now, therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: PROVISIONS 1.0 DEFINITIONS The definitions used herein shall be the same as used in the Agreement. 2.0 PURCHASE ORDER NOTE The following note shall be contained in any Order to which these SBP are applicable: This Order is subject to and incorporates by this reference SBP 6- 5752-0004 between The Boeing Company and Cory Components dated (DATE). Each Order bearing such note shall be governed by and be deemed to include the provisions of these SBP. 3.0 PRICES 3.1 PRODUCT PRICING The prices and applicable period of performance of Products scheduled for delivery under this SBP are set forth in Attachment 1. Prices are in United States dollars, F.O.B. El Segundo, CA. BCAG CONTRACT 11/30/95 1 SPECIAL BUSINESS PROVISIONS 3.2 MANUFACTURING CONFIGURATION BASELINE Unit pricing for each Product or part number shown in Attachment 1 is based on the latest revisions of the engineering drawings or specifications at the time of the signing of this SBP. 3.3 PACKAGING The prices shown in Attachment 1 include packaging costs and all materials and labor required to package Products identified in Attachment 1. Packaging shall be furnished by the Seller in accordance with Document M6- 1025, Volume II, "Supplier Part Protection Guide" or Document D200-10038-2 "Supplier Packaging Requirements" as applicable. In the case of Products to be shipped directly to Customers, A.T.A. Specification 300 "Specification for Packaging of Airline Supplies" shall apply unless otherwise directed by Boeing. 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT (For D1-9000 Suppliers) All work performed under this SBP shall be in accordance with the following document which is incorporated herein and made a part hereof by this reference: Document D1-9000, "Advanced Quality System for Boeing Suppliers," as amended from time to time. 5.0 APPLICABLE LAW JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance only with the law of the State of Washington as applicable to contracts entered into and to be performed wholly within such State between citizens of such State, without reference to any rules governing conflicts of law. Seller hereby irrevocably consents to and submits itself exclusively to the jurisdiction of the applicable courts of the State and the federal courts therein for the purpose of any suit, action or other judicial proceeding arising out of or connected with any Order or the performance or subject matter thereof. Seller hereby waives and agrees not to assert by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that (a) Seller is not personally subject to the jurisdiction of the above-named courts, (b) the suit, action or proceeding is brought in an inconvenient forum or (c) the venue of the suit, action or proceeding is improper. 2 SPECIAL BUSINESS PROVISIONS 6.0 PRODUCT ASSURANCE 6.1 GOVERNING DOCUMENT Seller acknowledges that Boeing and Customers must be able to rely on each Product performing as specified and that Seller will provide all required support. Accordingly, the following provisions and document(s) are incorporated herein and made a part hereof: Seller warrants to Boeing and Customers that Products shall: {a) conform in all respects to all the requirements of the Order; (b) be free from all defects in materials and workmanship; and (c) to the extent not manufactured pursuant to detailed designs furnished by Boeing, be free from all defects in design and be fit for the intended purposes. 7.0 PAYMENT 7.1 RECURRING PRICE Unless otherwise provided in the applicable Order, payment of the recurring price shall be made in accordance with Form X-27981 "Pay From Receipt - Additional Terms and Conditions Regarding Invoicing and Payment". Payment terms shall be net thirty (30) days except as otherwise agreed to by the parties. All payments are subject to adjustment for shortages, credits and rejections. 7.2 NON-RECURRING PRICE/SPECIAL CHARGES Unless otherwise provided in the applicable Order, any non-recurring price payable by Boeing under Attachment 1 shall be paid within the term discount period or thirty (30) calendar days (whichever is later) after receipt by Boeing of both acceptable Products and a correct invoice. 8.0 ACCELERATION/DECELERATION AT NO COST Notwithstanding GTA Section 10.0, Boeing may make changes in the delivery schedule without additional cost or change to the unit price stated in the applicable Order if (a) the delivery date of the Product under such Order is on or before the last date of contract, if applicable, and (b) Boeing provides Seller with written notice of such changes. 9.0 NOTICES 9.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, United States mail, telex, teletype, telegram, facsimile, cable or electronic transmission addressed to the respective party as follows: To Boeing: Attention: Lisa Eng: M/S 38-FX BOEING COMMERCIAL AIRPLANE GROUP MATERIAL DIVISION P.O. Box 3707 Seattle, Washington 98124-2207 To Seller: Attention: SUPPLIER NAME ADDRESS 3 SPECIAL BUSINESS PROVISIONS 10.0 OBLIGATION TO PURCHASE AND SELL Boeing and Seller agree that in consideration of the prices set forth under Attachment 1, Boeing shall issue Orders for Products from time to time to Seller for Boeing's requirements. Such Products shall be shipped at any scheduled rate of delivery, as determined by Boeing, and Seller shall sell to Boeing Boeing's requirements of such Products, provided that, without limitation on Boeing's right to determine its requirements, Boeing shall not be obligated to issue any Orders for any given Product if: A. Any of Boeing's customers specify an alternate product; B. Such Product is, in Boeing's reasonable judgment, not technologically competitive at any time, for reasons including but not limited to the availability of significant changes in technology, design, materials, specifications, or manufacturing processes which result in a reduced price or weight or improved appearance, functionality, maintainability or reliability; C. Boeing gives reasonable notice to Seller of a change in any of Boeing's aircraft which will result in Boeing no longer requiring such Product for such aircraft; D. Seller has materially defaulted in any of its obligations under any Order, whether or not Boeing has issued a notice of default to Seller pursuant to GTA Section 13.0; or, E. Boeing reasonably determines that Seller cannot support Boeing's requirements for Products in the amounts and within the delivery schedules Boeing requires. 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY Seller shall provide all necessary cost support data, source documents for direct and indirect costs, and assistance at the Seller's facility for cost performance reviews performed by Boeing pursuant to any Order. Furthermore, Seller shall provide financial data, on a quarterly basis, or as requested, to Boeing's Credit Office and Material Representative for credit and financial condition reviews. Said data shall include but not be limited to balance sheets, schedule of accounts payable and receivable, major lines of credit, creditors, income statements (profit and loss), cash flow statements, firm backlog, and headcounts. Copies of such data are to be made available within 72 hours of any written request by Boeing. This data is required in addition to the cost data provided pursuant to GTA Section 9.0. All such information shall be treated as confidential in accordance with GTA Section 20.0. 12.0 CHANGES 12.1 CHANGES TO THE STATEMENT OF WORK Boeing may direct Seller within the scope of the applicable Order and in accordance with the provisions of GTA Section 10.0, to increase or decrease the work to be performed by the Seller in the manufacture of any Product. 4 SPECIAL BUSINESS PROVISIONS 12.2 COMPUTATION OF EQUITABLE ADJUSTMENT NOT APPLICABLE The Rates and Factors set forth in Attachment 3, which by this reference is incorporated herein, shall be used to determine the equitable adjustment, if any, (including equitable adjustments, if any, in the prices of Products to be incorporated in Derivative Aircraft), to be paid by Boeing pursuant to SBP Section 12.1 and GTA Section 10.0 for each individual change. 12.3 OBSOLESCENCE Claims for obsolete or surplus material and work-in-process created by change orders issued pursuant to this Section shall be subject to the procedures set forth in GTA Section 12.0, except that Seller may not submit a claim for obsolete or surplus material resulting from an individual change order that has a total claim value of Twenty-Five Hundred Dollars ($2500.00) or less. Payment for obsolete or surplus materials shall be made by check deposited as first class mail to the address designated by Seller in SBP Section 9.1. Payment will be made on the tenth (10th) day of the month following the month of the obsolescence claim settlement. 12.4 CHANGE ABSORPTION 12.4.1 NON-RECURRING AND RECURRING CHANGE ABSORPTION Notwithstanding the provisions of GTA Section 10.0 and SBP Section 12.1, Seller will absorb 100% of all changes defined through the completion of production flight test certification. Provided, that, changes made by Boeing subsequent to certification which significantly revise the Product function as defined in the Specification or Specification Control Drawing (SCD), will be subject to provisions for adjustment of price pursuant to GTA Section 10.0 and SBP Section 12.1. 12.5 PLANNING SCHEDULE Any planning schedule or quantity estimate provided by Boeing shall be used solely for production planning. Boeing may purchase Products in different quantities and specify different delivery dates as necessary to meet Boeing's requirements. Such planning schedule and quantity estimate shall be subject to adjustment from time to time. Any such adjustment is not a change under GTA Section 10.0. 12.6 VALUE ENGINEERING Seller may from time to time submit proposals to Boeing to change drawings, designs, specifications or other requirements that: a. decrease Seller's performance costs; or b. produce a net reduction in the cost to Boeing of installation, operation, maintenance or production of the Product. Provided, that such change shall not impair any essential functions or characteristics of the Products or Tooling. 5 SPECIAL BUSINESS PROVISIONS 12.6.1 SUBMISSION OF PROPOSAL Proposals shall be submitted to Boeing's Material Representative. Boeing shall not be liable for any delay in acting upon a proposal. Boeing's decision to accept or reject any proposal shall be final. If there is a delay and the net result in savings no longer justifies the investment, Seller will not be obligated to proceed with the change. Seller has the right to withdraw, in whole or in part, any proposal not accepted by Boeing within the time period specified in the proposal. Seller shall submit, as a minimum, the following information with the proposal: a. description of the difference between the existing requirement and the proposed change, and the comparative advantages and disadvantages of each; b. the specific requirements which must be changed if the proposal is adopted; c. the cost savings and Seller's implementation costs; d. Each proposal shall include the need dates for engineering release and the time by which a proposal must be approved so as to obtain the maximum cost reduction. 12.6.2 ACCEPTANCE AND COST SHARING Boeing may accept, in whole or in part, any proposal by issuing a change order. Until such change has been issued, Seller shall remain obligated to perform in accordance with the terms and requirements of the original Order as written. Boeing and Seller shall share the savings as follows: (50%) savings to Boeing; (50%) savings to Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Each party shall be responsible for its own implementation costs, including but not limited to non-recurring costs. 12.6.3 COST SAVINGS COMPUTATION A change order shall be issued by Boeing and the unit price shall be reduced in an amount equal to the savings portion attributable to Boeing as set forth above. The applicable unit price as set forth in Attachment 1 Statement of Work shall be amended to reflect such change. EXAMPLE: ------- Current Price: $600.00 Proposed Cost Savings: $100.00/unit Boeing's Percentage: 50.0% Seller's Percentage: 50.0% 6 SPECIAL BUSINESS PROVISIONS 12.6.3 COST SAVINGS COMPUTATION (Continued) STEP BY STEP COMPUTATION: l. $100.00 unit savings x 50.0% Boeing's percentage of savings = $50.00 Boeing savings. 2. $100.00 unit savings x 50.0% Seller's percentage of savings = $50.00 Seller savings. 3. Net affect to the unit cost = $50.00 New Unit Price For Units = $550.00 12.6.4 WEIGHT REDUCTION PROPOSALS Seller is encouraged to submit proposals to Boeing that reduce the Product's weight without impairing any essential functions or characteristics of the Product. Seller shall submit such proposals in accordance with SBP Section 12.6.1 above. The amount of any costs or savings that result from a weight reduction proposal shall be agreed by Boeing and Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Boeing may accept in whole or in part, any such proposal by issuing a change order to the applicable Order. 12.7 REDUCTION IN QUANTITY TO BE DELIVERED Notwithstanding the provisions of GTA Sections 10.0 and 12.0, Boeing's maximum liability for an equitable adjustment resulting from a decrease in quantity or termination of Product(s) shall be limited to costs directly attributable to THREE months worth of scheduled deliveries of the Products. For purposes of this Section, scheduled deliveries shall be determined by the applicable schedule in effect at the time Seller commenced work on the Product(s) that are the subject of the termination or decrease. 13.0 SPARES AND OTHER PRICING 13.1 SPARES For purposes of this Section, the following definitions shall apply: A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated AOG by Boeing. Such effort includes but is not limited to working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such AOG Spare within two (2) hours of receipt of an AOG Spare request. B. CRITICAL - means an imminent AOG work stoppage. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated Critical by Boeing. Such effort includes but is not limited to working two (2) shifts a day, five (5) days a week and use of premium transportation. Seller shall specify the delivery date and time of any such Critical Spare within the same working day of receipt of a Critical Spare request. 7 SPECIAL BUSINESS PROVISIONS 13.1 SPARES (Continued) C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's normal leadtime. Seller will expend best efforts to meet the requested delivery date. Such effort includes but is not limited to working overtime and use of premium transportation. D. ROUTINE (CLASS III) - means a Spare required in Seller's normal leadtime. E. POA REQUIREMENT (POA) - means any detail component needed to replace a component on an End Item Assembly currently in Boeing's assembly line process. Seller shall expend best efforts feasible to provide the earliest possible delivery of any Spare designated as POA by Boeing. Such effort includes but is not limited to working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such POA within two (2) hours of an AOG Spare request. F. IN-PRODUCTION - means any Spare with a designation of AOG, Critical, Expedite, Routine, POA or End Item Assembly which is in the current engineering configuration for the Product and is used on a model aircraft currently being manufactured by Boeing. G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation of AOG, Critical, Expedite and Routine requirements which is used on model aircraft no longer being manufactured by Boeing (Post Production) or is in a non-current engineering configuration for the Product (Out of Production). H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured (i) by Boeing, or (ii) to Boeing's detailed designs with Boeing's authorization or (iii) in whole or in part using Boeing's Proprietary Materials. 13.1.1 SPARES SUPPORT Seller shall provide Boeing with a written Spares support process describing Seller's plan for supporting AOG and Critical commitments and manufacturing support. The process must provide Boeing with the name and number of a twenty-four (24) hour contact for coordination of AOG and Critical requirements. Such contact shall be equivalent to the coverage provided by Boeing to its Customers as outlined in Attachment 4 "Boeing AOG Coverage" which is incorporated herein and made a part hereof by this reference. Seller shall notify Boeing as soon as possible via fax, telecon, or as otherwise agreed to by the parties of each AOG and Critical requirement shipment using the form identified in Attachment 5 "Boeing AOG and Critical Shipping Notification". Such notification shall include time and date shipped, quantity shipped, Order, pack slip, method of transportation and air bill if applicable. Seller shall also notify Boeing immediately upon the discovery of any delays in shipment of any requirement and identify the earliest revised shipment possible. 8 SPECIAL BUSINESS PROVISIONS 13.1.2 RECLASSIFICATION OR RE-EXERCISES Boeing may on occasion, instruct Seller to re-prioritize or reclassify an existing requirement in order to improve or otherwise change the established shipping schedule. Seller shall expend the effort required to meet the revised requirement as set forth above in the definitions of the requirements. Seller's commitment of a delivery schedule shall be given in accordance with that set forth above for the applicable classification but in no case shall it exceed twenty-four (24) hours from notification by Boeing. 13.1.3 SPARE PRICING Except as set forth in subsections 13.1.3.1 and 13.1.3.2 below, the price for Spare(s) shall be the same as the production price for the Products as listed on Attachment 1, in effect at the time the Spare(s) are ordered. POA parts shall be priced so that the sum of the prices for all POA parts of an End Item Assembly equals the applicable recurring portion of the End Item Assembly. 13.1.3.1 AIRCRAFT ON GROUND (AOG), CRITICAL SPARES AND POA REQUIREMENT The price for AOG and Critical Spares and POA requirements shall be the price for such Products listed on Attachment 1. 13.1.3.2 EXPEDITE SPARE (CLASS 1) The price for Expedite Spares shall be the price for such Products listed on Attachment 1. 13.1.4 SPECIAL HANDLING The price for all effort associated with the handling and delivery of Spare(s) is deemed to be included in the price for such Spare(s). Provided, that if Boeing directs delivery of Spares to an F.O.B. point other than Seller's plant, Boeing shall reimburse Seller for shipping charges, including insurance, paid by Seller from the plant to the designated F.O.B. point. Such charges shall be shown separately on all invoices. 13.2 SHORT FLOW PRODUCTION REQUIREMENTS Expedite charges, if any, to be paid for short flow production requirements shall not exceed the amount payable under SBP Section 13.1.3.1 above for that portion of the Order which is released short flow except as otherwise agreed to in writing by Boeing. In the event Boeing agrees to pay an amount in excess of that set forth in SBP Section 13.1.3.1 above, Seller shall provide data to verify expedite charges requested. For purposes of this Section, "Short Flow Production" shall be defined as any requirement released less than Seller's current Re-Order Leadtime (ROLT). If Seller fails to meet the required delivery, Boeing shall not be obligated to pay the agreed upon amount. 9 SPECIAL BUSINESS PROVISIONS 13.3 TOOLING 13.3.1 RESPONSIBLE PARTY Seller shall absorb all costs for Tooling manufactured and/or purchased by Seller necessary for the manufacture and delivery of the Products including but not limited to rework, repair and maintenance of the Tooling. 13.3.2 BOEING FURNISHED TOOLING In the event Boeing furnishes Tooling to Seller to support the delivery of Product(s), Seller shall comply with the Terms and Conditions applicable to the Blanket Tooling Purchase Control Order established with Seller who possess or controls Tooling. No repair, replacement or rework required shall be performed without Boeing's prior written consent. Boeing shall notify Seller of, what if any, action shall be required for all discrepant Tooling. 13.4 PRICING OF BOEING'S SUPPORTING REQUIREMENTS Any Products required to assist Boeing's supporting requirements, including but not limited to requirements for color and appearance samples, Boeing- owned simulators, test requirements, factory support, flight test spares will be provided for not more than the applicable price as set forth in Attachment 1. 13.5 PRICING OF REQUIREMENTS FOR MODIFICATION OR RETROFIT Any Products required by Boeing to support a modification or retrofit program shall be provided for not more than the applicable price as set forth in Attachment 1. 13.6 SIMILAR PRICING New Products ordered by Boeing that are similar to or within Product families of Products currently being manufactured by Seller shall be priced using the same methodology or basis as that used to price the existing Product(s). 14.0 STATUS REPORTS/REVIEWS When requested by Boeing, Seller shall update and submit, as a minimum, monthly status reports on data requested by Boeing using a method mutually agreed upon by Boeing and Seller. When requested by Boeing, Seller shall provide to Boeing a manufacturing milestone chart identifying the major purchasing, planning and manufacturing operations for the applicable Product(s). 10 SPECIAL BUSINESS PROVISIONS Upon request by Boeing, a program review may be held between the parties. The location of such review shall be mutually agreed to by the parties. The purpose of the review is to improve communication and understanding between the parties to ensure program success. 15.0 PROVISIONS FOR OFFSET/BUSINESS STRATEGIES FOREIGN PROCUREMENT REPORT Seller agrees to cooperate with Boeing in identifying possible subcontractors for work under any Order that support Boeing's offset or business strategies. Prior to releasing any request for proposal to a subcontractor to support Boeing's offset or business strategy, Seller shall coordinate with Boeing. Seller shall document on Attachment 2 all offers to contract and executed contracts with such subcontractors including the dollars contracted. Seller shall provide to Boeing with an updated copy of Attachment 2 for the six-month periods ending June 30 and December 31 of each year. The reports shall be submitted on the 1st of August and the 1st of February respectively. 16.0 BOEING FURNISHED MATERIAL NOT APPLICABLE 17.0 ASSIGNMENT Boeing and Seller agree that Boeing may, in its discretion, assign, in part or in whole, its purchasing obligations under the Agreement or any Order, as applicable, at the prices set forth in Attachment 1 thereof. Boeing reserves the right to rescind its assignment at anytime. Boeing's assignment of purchasing obligation includes scheduling, issuance of Order(s), receival and inspection of Products, acceptance or rejection of Products, payment for accepted Products, and ensuring conformance to the quality assurance system requirements. Boeing shall retain all other rights and obligations pursuant to the applicable terms and conditions. In addition, Boeing reserves the right, where necessary, to coordinate with and mediate between Seller and any assignee regarding such assignment. 18.0 INVENTORY AT CONTRACT COMPLETION NOT APPLICABLE 19.0 OWNERSHIP OF INTELLECTUAL PROPERTY NOT APPLICABLE 19.1 TECHNICAL WORK PRODUCT NOT APPLICABLE 19.2 INVENTIONS AND PATENTS NOT APPLICABLE 19.3 WORKS OF AUTHORSHIP AND COPYRIGHTS NOT APPLICABLE 11 SPECIAL BUSINESS PROVISIONS 19.4 PRE-EXISTING INVENTIONS AND WORKS OF AUTHORSHIP NOT APPLICABLE 20.0 ADMINISTRATIVE AGREEMENTS NOT APPLICABLE 21.0 GUARANTEED WEIGHT REQUIREMENTS NOT APPLICABLE 22.0 SUPPLIER DATA REQUIREMENTS NOT APPLICABLE 23.0 DEFERRED PAYMENT NOT APPLICABLE 24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS NOT APPLICABLE EXECUTED in duplicate as of the date and year first set forth above by the duly authorized representatives of the parties. THE BOEING COMPANY By and Through its Division Boeing Commercial Airplane Group Name: /s/ illegible Name: /s/ illegible ------------------------ ------------------------ Title: PRESIDENT Title: ------------------------ ------------------------ Date: Date: ------------------------ ------------------------ 12 ATTACHMENT 1 TO SPECIAL BUSINESS PROVISIONS WORK STATEMENT AND PRICING The price for Products to be delivered on or before December 31, 199, except as otherwise noted below, shall be as follows: PART NUMBER LEAD TIME NOMENCLATURE UNIT PRICE - ----------- --------- ------------ ---------- SEE ENCLOSURE A 1 Attachment 1 to Special Business Provisions Work Statement and Pricing The price for products to be delivered through December 31, 1999 shall be as follows: (a) designates new parts added to the contract. Contract Part Number/Family Lead Time Nomenclature Price -------------------- --------- ------------ ---------- (a) CA1044-1 12 Weeks Latch $1.01 (a) CAMA11A1S 12 Weeks Connector $25.39 (a) CAMA11W1P 12 Weeks Connector $11.00 (a) CAMA11W1S 12 Weeks Connector $25.45 (a) CAMA11W1SLF 12 Weeks Connector $37.75 (a) CAMA15S 12 Weeks Connector $11.05 CAMA15S5LF 12 Weeks Connector $55.94 CB004-5P 12 Weeks Contact $1.67 CB005-5P 12 Weeks Contact $1.97 (a) CB008-5P 12 Weeks Contact $4.23 (a) CB009-5P 12 Weeks Contact $3.50 CB02-15P1 12 Weeks Connector $25.50 CB02C-15P 12 Weeks Receptacle $55.48 CB02C-15S 12 Weeks Connector $54.44 CB05-15S 12 Weeks Plug $39.25 (a) CB06-15P 12 Weeks Connector $25.20 (a) CB06-15S 12 Weeks Connector $24.44 CB12P1 12 Weeks Plug $7.75 CBCX12R1A 12 Weeks Receptacle $67.93 (a) CBCX12RP1A 12 Weeks Connector $407.02 (a) CBMA21W1P 12 Weeks Connector $17.75 (a) CBMA21W1S 12 Weeks Connector $18.68 (a) CBX12PM1A 12 Weeks Connector $51.80 (a) CC5791-3 12 Weeks Contact $33.38 CCM25A3P-SP 12 Weeks D-Sub $39.57 (a) CCMA17W5PK87 12 Weeks Connector $40.05 (a) CCMA17W5S 12 Weeks Connector $27.48 (a) CCMA21WA4S 12 Weeks Connector $18.42 (a) CCMA25W3S 12 Weeks Connector $18.55 (a) CCMA37PK87 12 Weeks Connector $18.06 (a) CDMA36W4S 12 Weeks Connector $23.96 (a) CJC200 12 Weeks Connector $315.25 (a) CJC400 12 Weeks Dummy VDU $441.57 (a) CJC600 12 Weeks Switch $275.00 (a) CLPT12SP06 12 Weeks Adapter Connector $592.25 (a) CLPT12SP07 12 Weeks Adapter Connector $592.25 CMP002-P103 12 Weeks Contact $4.82 CMP002-Sl03 12 Weeks Contact $5.11 CMP003-P103 12 Weeks Contact $4.72 1 Attachment 1 to Special Business Provisions Work Statement and Pricing The price for products to be delivered through December 31, 1999 shall be as follows: (a) designates new parts added to the contact. Contract Part Number/Family Lead Time Nomenclature Price -------------------- --------- ------------ ---------- CMP003-S103 12 Weeks Contact $5.02 CMP004-P103 12 Weeks Contact $4.72 CMP004-S103 12 Weeks Contact $5.02 (a) CMX006S102 12 Weeks Contact $6.00 (a) CMX006S102E 12 Weeks Contact $15.79 (a) CPIS001 12 Weeks Connector $107.00 (a) CPX3MAB32C4PD106S67P 12 Weeks Connector $447.65 (a) CPX3MAB32C4SD106P67S 12 Weeks Connector $437.40 (a) CPXBMA32-33S0001 12 Weeks Connector $100.00 (a) CQAEM 12 Weeks Connector $23.00 CQAMA11W1P 12 Weeks Connector $41.91 (a) CQAMA11W1S 12 Weeks Connector $48.37 CQAMA15P 12 Weeks Connector $17.50 CQAMA15S 12 Weeks Connector $47.85 CQAPM 12 Weeks Backshell $3.09 (a) CQARA11W1P 12 Weeks Connector $585.18 (a) CQARA11W1S 12 Weeks Connector $195.12 CQASM 12 Weeks Backshell $3.24 (a) CQBMA13W3P 12 Weeks Connector $39.95 (a) CQBMA13W3S 12 Weeks Connector $77.29 (a) CQBMA17W2P 12 Weeks Connector $30.35 (a) CQBMA25P 12 Weeks Connector $116.73 (a) CQBPM 12 Weeks Connector $22.37 (a) CQBSM 12 Weeks Backshell $17.11 CQCMA21WA4S 12 Weeks Connector $51.55 (a) CQCMA25W3P 12 Weeks Connector $331.36 (a) CQCMA25W3S 12 Weeks Connector $39.63 CQCMA2SW3S 12 Weeks Connector $45.25 CQCMA37P 12 Weeks Connector $45.62 CQCPM 12 Weeks Backshell $14.12 CQCRA21WA4P 12 Weeks Connector $193.86 CQCRA21WA4S 12 Weeks Connector $193.83 CQCSM 12 Weeks Backshell $4.09 (a) CQDMA24W7P 12 Weeks Connector $697.54 (a) CQDMA24W7S 12 Weeks Connector $43.75 CQDMA36W4S 12 Weeks Connector $54.73 CQDMA50S 12 Weeks Connector $60.31 CQDPM 12 Weeks Backshell $20.52 CQDRA24SW7S 12 Weeks Connector $697.54 2 Attachment 1 to Special Business Provisions Work Statement and Pricing The price for products to be delivered through December 31, 1999 shall be as follows: (a) designates new parts added to the contract. Contract Part Number/Family Lead Time Nomenclature Price -------------------- --------- ------------ ---------- CQDRA50P 12 Weeks D Sub $195.15 CQDSM 12 Weeks Backshell $15.02 CQEEM 12 Weeks Backshell $5.68 CQEMA9P 12 Weeks Connector $32.77 CQEMA9S 12 Weeks Connector $16.87 CQEPM 12 Weeks Backshell $3.35 CQESM 12 Weeks Backshell $6.56 (a) CQMEF200 12 Weeks Contact $19.95 (a) CQMEF316 12 Weeks Contact $22.12 CQMEF501 12 Weeks Contact $8.43 CQMEF501A 12 Weeks Contact $10.45 CQMEF502A 12 Weeks Contact $24.02 (a) CQMEF503 12 Weeks Contact $29.75 (a) CQMEM200 12 Weeks Contact $17.47 (a) CQMEM316 12 Weeks Connector $18.99 CQMEM501 12 Weeks Contact $14.22 CQMEM502 12 Weeks Contact $19.56 (a) CQMEM503 12 Weeks Connector $28.58 (a) CRC280-2 12 Weeks Contact $27.71 (a) CRC280-3 12 Weeks Contact $28.38 (a) CRC280-4 12 Weeks Contact $26.76 (a) CRM280-2 12 Weeks Contact $72.12 (a) CRM280-3 12 Weeks Contact $28.74 (a) CRM280-4 12 Weeks Contact $26.78 (a) CRMEF501 12 Weeks Contact $16.71 (a) CRMEM501 12 Weeks Contact $15.38 CSLT21P1A 12 Weeks Plug $21.70 CT14S 12 Weeks Backshell $0.87 CTB0802 12 Weeks Terminal Block $303.13 CTB8C 12 Weeks Terminal Block Cover $25.96 (a) CTB9000 12 Weeks Terminal Block $542.21 (a) CTB9CS 12 Weeks Terminal Cover $62.61 CTER100 12 Weeks Terminal Assembly $125.00 CTER120 12 Weeks Terminal Assembly $125.00 (a) CTR14S 12 Weeks Backshell $3.45 (a) CTR90SR1S 12 Weeks Backshell $206.86 CTX623-6CH 12 Weeks Telephone Jack $60.33 (a) CTZ623-6CH 12 Weeks Telephone Jack $23.78 (a) CWC01-1210 12 Weeks Connector $59.66 3 Attachment 1 to Special Business Provisions Work Statement and Pricing The price for products to be delivered through December 31, 1999 shall be as follows: (a) designates new parts added to the contract. Contract Part Number/Family Lead Time Nomenclature Price -------------------- --------- ------------ ---------- (a) CWC01-2006 12 Weeks Terminal $23.31 (a) CWC01-2010 12 Weeks Terminal $23.34 CWC02-2006 12 Weeks Terminal $56.45 CWC02-2010 12 Weeks Terminal $62.92 (a) DSB3 12 Weeks Backshell $23.83 (a) DSB4 12 Weeks Backshell $23.83 (a) DSB5 12 Weeks Backshell $23.83 (a) K3004-0001-2005 12 Weeks Contact $1.69 (a) K3004-0002-1605 12 Weeks Contact $3.14 (a) K4004-0001-2005 12 Weeks Contact $2.90 (a) K4004-0002-1605 12 Weeks Contact $3.05 4 ATTACHMENT 2 TO SPECIAL BUSINESS PROVISIONS FOREIGN PROCUREMENT REPORT FORM (Seller to Submit) (Reference Section 15.0) COMMODITY/ BID CONTRACTED SUPPLIER NAME COUNTRY NOMENCLATURE DOLLARS DOLLARS - ------------- ------- ------------ ------- ---------- 2 ATTACHMENT 3 TO SPECIAL BUSINESS PROVISIONS RATES AND FACTORS (Reference Section 12.2) 3 ATTACHMENT 4 TO SPECIAL BUSINESS PROVISIONS BOEING AOG COVERAGE - - NORMAL HOURS BOEING'S MATERIAL REPRESENTATIVE(MATERIAL DIVISION) Approximately 5:30 a.m. - 6:00 p.m. - Performs all functions of procurement process. - Manages formal communication with Seller. - - SECOND SHIFT - AOG PROCUREMENT SUPPORT (MATERIAL DIVISION) 3:00 p.m. - 11:00 p.m. - May place order and assist with commitment and shipping information, working with several suppliers on a priority basis. - Provides a communication link between Seller and Boeing. - - 24 HOUR AOG SERVICE - AOG CUSTOMER REPRESENTATIVE (CUSTOMER SERVICE DIVISION ) 544-9000 - Support commitment information particularly with urgent orders. - Customer Service Representative needs (if available): - Part Number - Boeing Purchase Order - Airline Customer & customer purchase order number - Boeing S.I.S. # If Seller is unable to contact any of the above, please provide AOG/Critical shipping information notification via FAX using Boeing AOG/Critical shipping notification form (Attachment 5). 4 ATTACHMENT 5 TO SPECIAL BUSINESS PROVISIONS BOEING AOG/CRITICAL SHIPPING NOTIFICATION - -------------------------------------------------------------------------------- To: FAX: (206) 544-9261 or 544-9262 Phone: (206) 544-9296 -------------------------- ------------------------------ Buyer Name: Phone: --------------------- ------------------------------ From: Today's Date: --------------------- ------------------------------ - -------------------------------------------------------------------------------- Part Number: Customer PO: --------------------- ----------------------- Customer: Ship Date: --------------------- ----------------------- Qty Shipped: *SIS Number: --------------------- ----------------------- Boeing PO: Pack Sheet --------------------- ----------------------- *Airway Bill: or Invoice: --------------------- ----------------------- Carrier: *Flight #: --------------------- ----------------------- Freight Forwarder: --------------------- * If Applicable Shipped To:(Check One) Boeing ----- Direct Ship to Customer ----- Direct Ship to Supplier ----- Remarks: ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- IF UNABLE TO CONTACT BUYER, PLEASE USE THIS FORM TO FAX SHIPPING INFORMATION. 5 ATTACHMENT 6 TO SPECIAL BUSINESS PROVISIONS SUPPLIER DATA REQUIREMENTS LIST ("SDRL") CUSTOMER SUPPORT (Reference Section 21.0) NOT APPLICABLE 6 ATTACHMENT 7 TO SPECIAL BUSINESS PROVISIONS SUPPLIER DATA REQUIREMENTS LIST ("SDRL") ENGINEERING (Reference Section 21.0) NOT APPLICABLE 7 SPECIAL BUSINESS PROVISIONS 19.4 PRE-EXISTING INVENTIONS AND WORKS OF AUTHORSHIP NOT APPLICABLE 20.0 ADMINISTRATIVE AGREEMENTS NOT APPLICABLE 21.0 GUARANTEED WEIGHT REQUIREMENTS NOT APPLICABLE 22.0 SUPPLIER DATA REQUIREMENTS NOT APPLICABLE 23.0 DEFERRED PAYMENT NOT APPLICABLE 24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS NOT APPLICABLE EXECUTED in duplicate as of the date and year first set forth above by the duly authorized representatives of the parties. THE BOEING COMPANY CORY COMPONENTS By and Through its Division Boeing Commercial Airplane Group Name: /s/ Name: /s/ -------------------- --------------------- Title: Buyer Title: PRESIDENT -------------------- --------------------- Date: December 1, 1995 Date: 2/12/96 -------------------- --------------------- 12 EX-10.15-2 51 EXHIBIT 10.15.2 EXHIBIT 10.16 BOEING PURCHASE AGREEMENT 9423JC4548 between BOEING DEFENSE & SPACE-IRVING CO. 3131 STORY ROAD WEST IRVING, TEXAS 75038 and CORY COMPONENTS 2201 ROSECRANS AVENUE EL SEGUNDO, CA 90245 Period of Performance January 1, 1995 through December 31, 1999 AGREEMENT #9423JC4548 TABLE OF CONTENTS RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.0 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Products. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Material Representative . . . . . . . . . . . . . . . . . . . 1 1.3 F.O.B . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Specification . . . . . . . . . . . . . . . . . . . . . . . . 2 2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS. . . . . . . . . . . . . . 2 2.1 Issuance of Orders. . . . . . . . . . . . . . . . . . . . . . 2 2.2 Supplier Scheduling . . . . . . . . . . . . . . . . . . . . . 2 2.3 Acceptance of Orders. . . . . . . . . . . . . . . . . . . . . 2 2.4 Rejection of Orders . . . . . . . . . . . . . . . . . . . . . 3 2.5 Written Authorization to Proceed. . . . . . . . . . . . . . . 3 3.0 TITLE AND RISK OF LOSS . . . . . . . . . . . . . . . . . . . . . . 3 4.0 PRICING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5.0 NON-RECURRING COSTS. . . . . . . . . . . . . . . . . . . . . . . . 4 6.0 LEADTIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7.0 DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7.1 Requirements . . . . . . . . . . . . . . . . . . . . . . . . 5 7.2 Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7.3 Expedited Delivery . . . . . . . . . . . . . . . . . . . . . 5 8.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES. . . . . . . . . . . . 5 8.1 Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8.2 Resident Representatives. . . . . . . . . . . . . . . . . . . 6 9.0 PRODUCT CONFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . 6 10.0 QUALITY CONTROL, INSPECTION, REJECTION, AND ACCEPTANCE . . . . . . 6 10.1 Controlling Document. . . . . . . . . . . . . . . . . . . . . 6 i 10.2 Inspection and Rejection. . . . . . . . . . . . . . . . . . . 6 10.3 SELLER's Notice of Discrepancies. . . . . . . . . . . . . . . 7 10.4 Right of Entry. . . . . . . . . . . . . . . . . . . . . . . . 7 10.5 Certification . . . . . . . . . . . . . . . . . . . . . . . . 8 10.6 Retention of Records. . . . . . . . . . . . . . . . . . . . . 8 10.7 Source Inspection . . . . . . . . . . . . . . . . . . . . . . 8 11.0 PATENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 12.0 EXAMINATION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . 9 13.0 CHANGES TO SPECIFICATIONS. . . . . . . . . . . . . . . . . . . . . 9 14.0 CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 15.0 INVOICE AND PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 10 16.0 PACKAGING AND SHIPPING . . . . . . . . . . . . . . . . . . . . . . 10 17.0 WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 18.0 TERMINATION FOR DEFAULT. . . . . . . . . . . . . . . . . . . . . . 11 19.0 TERMINATION FOR CONVENIENCE. . . . . . . . . . . . . . . . . . . . 11 20.0 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 21.0 RESPONSIBILITY FOR PROPERTY. . . . . . . . . . . . . . . . . . . . 12 22.0 TECHNOLOGICAL DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . 12 22.1 Proprietary Information . . . . . . . . . . . . . . . . . . . 13 23.0 COMPLIANCE WITH FEDERAL, STATE AND LOCAL LAWS. . . . . . . . . . . 13 23.1 Clean Air Act . . . . . . . . . . . . . . . . . . . . . . . . 13 24.0 BUYER'S RIGHTS IN SELLER'S DATA, PATENTS AND TOOLING . . . . . . . 14 25.0 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 25.1 Addresses . . . . . . . . . . . . . . . . . . . . . . . . . . 14 25.2 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . 15 26.0 PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 27.0 FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ii 28.0 RELIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 29.0 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 30.0 SUBCONTRACTING . . . . . . . . . . . . . . . . . . . . . . . . . . 16 31.0 NOTICE OF LABOR DISPUTES . . . . . . . . . . . . . . . . . . . . . 16 32.0 NON-WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 33.0 HEADING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 34.0 PARTIAL INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . . 16 35.0 APPLICABLE LAW; JURISDICTION . . . . . . . . . . . . . . . . . . . 16 36.0 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 36.1 Exclusion of Taxes in Price . . . . . . . . . . . . . . . . . 16 36.2 Tax Claims. . . . . . . . . . . . . . . . . . . . . . . . . . 17 37.0 ENTIRE AGREEMENT; ORDER OF PRECEDENCE. . . . . . . . . . . . . . . 17 ATTACHMENT "A" Specifications and Pricing. . . . . . . . . . . . . . . 19 ATTACHMENT "B" Leadtime. . . . . . . . . . . . . . . . . . . . . . . . 20 ATTACHMENT "C" Supplier Scheduling Program . . . . . . . . . . . . . . 21 ATTACHMENT "D" Supplier Scheduling Report. . . . . . . . . . . . . . . 23 iii AGREEMENT NO. 9423JC4548 This Agreement is made this date, February 8, 1995, by and between BOEING DEFENSE & SPACE - IRVING CO., of 3131 Story Road West, Irving, TX 75038, herein known as "BUYER", and CORY COMPONENTS, of 2201 Rosecrans Ave., El Segundo, CA 90245, herein known as "SELLER". This Agreement shall be in effect from January 1, 1995 through December 31, 1999 and for the delivery schedules through June 30, 2000 with option to extend. The terms of this Agreement may also be extended to compensate for an amount of time equal to the time the contract is on hold due to quality problems, should any be encountered. RECITALS A. BUYER is currently supporting production of commercial aircraft. B. SELLER manufactures and sells certain goods and services for use in the production and support of commercial aircraft. C. SELLER desires to sell and BUYER desires to purchase certain of Seller's goods and services for the production and support of commercial aircraft. D. SELLER and BUYER desire to enter into an agreement for the sale by Seller and purchase by BUYER of Products as defined herein. Now, therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: AGREEMENTS 1.0 DEFINITIONS 1.1 "PRODUCTS" shall mean (a) all goods purchased and described on any Order and (b) services purchased and described on any Order or attachments to this Agreement. 1.2 "MATERIAL REPRESENTATIVE" shall mean the employee and his/her management designated as such by BUYER from time to time, or in the absence of such designation, BUYER's employee and his/her management primarily responsible for dealing with SELLER in connection with administration of the applicable Order. 1.3 "F.O.B." shall mean "Free on Board". 1 1.4 "ORDER": Each purchase order accepted by SELLER is a contract between BUYER and SELLER and shall be referred to herein as an "Order". (See Article 2.2, "Supplier Scheduling"). 1.5 "SPECIFICATION": Specifications shall be defined to mean the document(s) which are referenced and/or attached hereto, and also include those incorporated as Attachment "A". 2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS 2.1 ISSUANCE OF ORDERS BUYER shall issue Orders to SELLER from time to time. Each Order shall contain a description of the Products ordered, a reference to the applicable specifications and drawings, the quantities, the prices, the delivery schedule, the terms and place of delivery, any special conditions and the following note: "This Order is placed in accordance with Agreement No. 9423JC4548 between Boeing Defense & Space - Irving Co. and Cory Components. Period of performance January 1, 1995 through December 31, 1999 with deliveries through June 30, 2000." 2.2 SUPPLIER SCHEDULING In the future, this contract may be modified by mutual agreement to include Supplier Scheduling disciplines and techniques which may alter leadtimes, Order releases and reschedule policies. For Supplier Scheduling disciplines and techniques, this Agreement shall be modified for Orders released by BUYER as agreed to in Attachments "C" and "D". Leadtimes, minimum production releases and order policies may be altered as mutually agreed between BUYER and SELLER. 2.3 ACCEPTANCE OF ORDERS Each Order is BUYER's offer to SELLER and acceptance is strictly limited to its terms. BUYER WILL NOT BE BOUND BY AND SPECIFICALLY OBJECTS TO ANY TERM OR CONDITION WHICH IS DIFFERENT FROM OR IN ADDITION TO THE PROVISIONS OF THE ORDER, WHETHER OR NOT SUCH TERM OR CONDITION WILL MATERIALLY ALTER THE ORDER. SELLER's commencement of performance or acceptance of the Order in any manner shall conclusively evidence SELLER's acceptance of the Order as written. BUYER may revoke, at no charge, any Order/release prior to receipt of SELLER's written acceptance or SELLER's commencement of performance. 2 2.4 REJECTION OF ORDERS Any rejection by SELLER of an Order shall specify the reasons for rejection and any changes or additions that would make the Order acceptable to SELLER; provided, however, that SELLER may not reject any Order for reasons inconsistent with the provisions of this Agreement. 2.5 WRITTEN AUTHORIZATION TO PROCEED BUYER may give written authorization to SELLER to commence performance before BUYER issues an Order. If BUYER in its written authorization specifies that an Order will be issued, BUYER and SELLER shall proceed as if an Order had been issued. This Agreement and the terms stated in such written authorization shall be deemed to be a part of BUYER's offer, and the parties shall promptly agree on any open Order terms. If BUYER does not specify in its written authorization that an Order shall be issued, BUYER's obligation is strictly limited to the terms of the written authorization. If SELLER commences performance (a) before an Order is issued or (b) without receiving BUYER's prior written authorization to proceed, such performance shall be at SELLER's expense. 3.0 TITLE AND RISK OF LOSS Title to and risk of any loss of or damage to the Products shall pass from SELLER to BUYER at F.O.B. point El Segundo, CA, except for loss or damage thereto resulting from SELLER's fault or negligence. Passage of title on delivery does not constitute BUYER's acceptance of Products. 4.0 PRICING Pricing for all product(s) purchased under this Agreement shall not exceed the prices shown in Attachment "A", and shall remain firm through December 31, 1999 and for deliveries through June 30, 2000, unless altered by specification changes outlined in Article 13.0, "CHANGES TO SPECIFICATIONS". Pricing shall be available to all BOEING locations and subsidiaries should they elect to participate under the terms of this Agreement. If during the term of this Agreement, SELLER, in its sales to other customers, reduces prices or leadtimes of like quantities of comparable items, below those stated herein, the lowest prices and reduced leadtimes will be made available to the BUYER and prevail under this Agreement. SELLER shall promptly, in writing, notify BUYER of such reductions as they become known and/or effective. If, during the term of this Agreement, a qualified Supplier offers BUYER a qualified product which is comparable to a product herein, at a price which is more than five percent (5%) lower than the price specified herein, then SELLER shall be offered the 3 opportunity to continue providing the product, or comparable product acceptable to BUYER, under this Agreement at such lower price. If SELLER is unwilling to meet competition as specified above, then the product affected may, at BUYER's option, be deleted from this Agreement and BUYER shall have no further obligations to such product under this Agreement. Such deletion shall have no effect upon BUYER's obligation to accept delivery of product already released by BUYER prior to such deletion. The Agreement, as modified, shall remain in full force and effect with respect to the remaining products. All purchases of units shall be made only upon BUYER's standard Order(s) then in use at its various buying locations. (Reference Article 2.2 "Supplier Scheduling"). All such Orders shall be accumulated in calculating quantities. Orders shall specify BUYER's part numbers, quantities, due dates, and agreement numbers. ESTIMATES AND REQUIREMENTS USED IN ANY DOCUMENT RELATING TO THIS AGREEMENT ARE INFORMATIONAL ONLY AND REPRESENT NO COMMITMENT BY BUYER UNTIL A SPECIFIC ORDER IS RELEASED. BUYER DOES NOT COMMIT TO PURCHASE ALL OR ANY SPECIFIC PORTION OF ITS TOTAL NEEDS, ESTIMATES, OR REQUIREMENTS FROM SELLER. BUYER shall in no event or under any circumstances whatsoever be liable for raw material, work in process, components, or any other expenses or damages except as expressly agreed to herein. BUYER's maximum liability shall not at any time exceed the number of furnished units for which Orders have been released, times the furnished unit price specified herein. Items furnished by SELLER, but not listed on Attachment "A" may be negotiated and added to this Agreement by written addendum. 5.0 NON-RECURRING COSTS A. Non-recurring charges, if any, incurred by BUYER in conjunction with this Agreement shall be an all inclusive, one-time charge, shown, upon occurrence, in Attachment "A", to produce the corresponding product(s) listed in Attachment "A". Such charges shall be itemized and invoiced separately from product costs. B. All tooling, jigs, fixtures, drawings, etc. shall become the property of BUYER at time of payment of the Order invoice for same, and shall be maintained in an industry acceptable manner and covered for replacement value by the SELLER while in SELLER's possession. In the event of termination of this Agreement BUYER shall provide disposition of such property to SELLER. 6.0 LEADTIME SELLER shall maintain "not to exceed" leadtimes as stated in Attachment "B". BUYER, at its option, may specify longer time intervals. 4 7.0 DELIVERY 7.1 REQUIREMENTS Deliveries shall be strictly in accordance with the quantities, the schedule and other requirements specified in the applicable Order. SELLER may not make early deliveries without BUYER's prior written authorization. All delivery dates shown on the Order(s) are to be considered BUYER's on DOCK DATES. SELLER agrees to ship in sufficient time to meet the required date without preceding it by more than five (5) calendar days or exceeding it by more than zero (0) days provided that the quantities and schedules are in accordance with the requirements of this Agreement. BUYER reserves the right to reschedule for later delivery any item on the Order(s) at no charge, by giving notice at least fifteen (15) working days prior to the date of the original scheduled due date of that item. BUYER's expectation is 100% On-Time delivery to SELLER's commitment. SELLER shall maintain a minimum of 96% on-time delivery to SELLER commitment as measured by BUYER's performance rating system. It is understood that BUYER's minimum acceptable performance will increase during the term of this Agreement. 7.2 DELAY SELLER shall notify BUYER immediately, in writing, upon learning of any circumstance that may cause a delay in delivery, stating the period of delay and the reasons therefore. SELLER shall use reasonable additional effort, including premium effort, and shall ship via air or other expedited routing to avoid or minimize delay to the maximum extent possible. All additional costs resulting from such premium effort or premium transportation shall be borne by SELLER. Nothing herein may be construed to prejudice any of the rights or remedies provided to BUYER in the applicable Order or by law. 7.3 EXPEDITED DELIVERY In the event BUYER has requirements that necessitate an expedited delivery date, SELLER will strive to meet this need and any premium charges shall be negotiated at time of Order. In the event SELLER fails to exert reasonable effort to meet a delivery date for which premium charges have been authorized, such charges shall become void. 8.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES 8.1 REVIEW At BUYER's request, SELLER shall provide at BUYER's facility, or at a place designated by BUYER, a review explaining the status of any Order, actions taken 5 or planned to be taken relating to such Order and any other relevant information. Nothing herein may be construed as a waiver of BUYER's rights to proceed against SELLER because of any delinquency. 8.2 RESIDENT REPRESENTATIVES BUYER may in its discretion and for such periods as it deems necessary assign resident personnel at SELLER's facilities in addition to the resident Quality Control personnel provided for in Article 10.3, "Right of Entry". The resident team will function under the guidance of BUYER's manager who will provide program coordination within the scope of the work authorized by any Order. The resident team will provide communication and coordination to ensure timely performance of any Order. BUYER's resident team shall be allowed access to all work areas, Order status reports and management review necessary to assure timely coordination and conformance with the requirements of each Order. SELLER, however, remains fully responsible for performing in accordance with each Order. 9.0 PRODUCT CONFORMANCE SELLER shall manufacture Product(s) listed in Attachment "A" to the requirements set forth in the specifications listed in Attachment "A". SELLER warrants that Products delivered under this Agreement shall conform 100% to the performance and design parameters of BUYER'S Specifications. 10.0 QUALITY CONTROL, INSPECTION, REJECTION, AND ACCEPTANCE 10.1 CONTROLLING DOCUMENT All work performed under each Order shall be subject to Document D1-9000 "Advanced Quality System for Boeing Suppliers", latest revision as revised from time to time. Such document by this reference is incorporated herein. 10.2 INSPECTION AND REJECTION Products shall be subject to final inspection and acceptance by BUYER at destination, notwithstanding any payment or prior inspection. All Products from all lots received by BUYER shall either be new and unused Products or Products authorized by BUYER's reject tag disposition. Final inspection of a Product will be made within a reasonable time after receipt of such Product. BUYER may reject any or all of the Products which do not strictly conform to the requirements of the applicable Order. BUYER may reject an entire lot of Product based on discrepancies detected in a sample quantity selected from the lot. BUYER shall by notice, rejection tag or other communication notify SELLER of such rejection. At SELLER's risk and expense, all such Products will be returned to SELLER for immediate rework, replacement or other correction and redelivery or full credit to BUYER; provided, however, that with respect to any or all of such Products and at BUYER's election and at SELLER's risk and expense, BUYER 6 may: (a) hold, retain or return such Products without permitting any rework, replacement or other correction by SELLER; (b) hold or retain such Products for rework by SELLER or, at BUYER's election, for rework by BUYER with such assistance from SELLER as BUYER may require; (c) return such Products for full credit only (d) hold such Products until SELLER has delivered conforming replacements for such Products; (e) hold such Products until confirming replacements are obtained from a third party; or (f) return such Products with instructions to SELLER as to whether such Products shall be reworked or replaced and as to the manner of redelivery. Any attempt by SELLER to salvage Products rejected by BUYER shall be in accordance with the BUYER's rejection tag disposition. BUYER shall provide rejection tag documentation to the SELLER to authorize the salvage. Lots delivered with BUYER's rejection tag deviations shall contain a copy of the rejection tag authorizing such deviation and must be attached to the applicable packing sheets. BUYER shall provide a copy of the rejection tag to the SELLER. SELLER shall strive to complete all rework, replacement and other corrections and redelivery within fifteen (15) calendar days. All costs and expenses, loss of value and any other damages incurred as a result of or in connection with nonconformance and rework, replacement or other correction may be recovered from SELLER by a mutually agreeable equitable price reduction, set-off or credit against any amounts that may be owed to SELLER under the applicable Order or otherwise. BUYER may revoke its acceptance of any Products and have the same rights with regard to the Products involved as if it had originally rejected them. 10.3 SELLER'S NOTICE OF DISCREPANCIES The SELLER shall notify BUYER, in writing within five (5) days, should the SELLER believe and/or have been notified in any manner, that non-compliant Product has or may have been delivered against this Agreement. This condition shall survive beyond the performance period of the Agreement. 10.4 RIGHT OF ENTRY BUYER's authorized representatives and/or Federal Aviation Administration may enter SELLER's plant at all reasonable times to conduct preliminary inspections and tests of the Products and work- in-process. SELLER shall include in its major subcontracts issued in connection with an Order a like provision giving BUYER the right to enter the plants of SELLER's subcontractors. BUYER may assign representatives at SELLER's plant on a full-time basis. SELLER shall furnish, free of charge, all office space, secretarial service and other facilities and assistance reasonably required by BUYER's representatives at SELLER's plant. 7 10.5 CERTIFICATION A certification that materials and/or finished parts have been controlled and tested in accordance with and will meet specified Order requirements and applicable specifications and that records are on file subject to BUYER's examination shall be included on or with the packing sheet accompanying each shipment. The drawing or specification revision will be noted on such packing sheet. Such packing sheet shall note if BUYER has provided materials. Copies of manufacturing planning, test and inspection results or certifications shall be furnished to BUYER on request. 10.6 RETENTION OF RECORDS Quality Control records shall be maintained on file and available to BUYER's authorized representatives. SELLER shall retain such records for a period of not less than three (3) years from the date of final payment under the applicable Order. Prior to disposal of any such records, BUYER shall be notified and SELLER shall transfer such records as BUYER may direct. 10.7 SOURCE INSPECTION If an Order contains a notation that "Source Inspection" is required, the Products may not be packed for shipment until they have been submitted to BUYER's Quality Control representative for inspection. Both the packing list and SELLER's invoice must reflect evidence of this inspection. 11.0 PATENTS SELLER shall defend any suit or proceeding brought against BUYER, insofar as such suit or proceeding is based on a claim that goods manufactured and supplied to BUYER constitute direct infringement of any patent or copyright. SELLER must be notified promptly of such claim in writing and must be given all necessary authority, information and assistance (at SELLER's expense). SELLER will pay all damages and costs awarded against BUYER. If the use of such Product or part is enjoined, SELLER will, in its sole discretion and expense, procure for BUYER the right to continue using said Product or part, replace same with an acceptable non-infringing product or part or modify it so that it becomes non-infringing, in a manner that is acceptable to the BUYER. SELLER shall have no liability for any infringement of patents, copyrights, trademarks or other intellectual property rights resulting from use of said Product other than as specified in relevant SELLER publications or from use of said Product with Products not supplied by SELLER. 8 12.0 EXAMINATION OF RECORDS SELLER shall maintain complete and accurate records showing the sales volume of all Products. Such records shall support all services performed, allowances claimed and costs incurred by SELLER in the performance of each Order, including but not limited to those factors which comprise or affect direct labor hours, direct labor rates, material costs, burden rates and subcontracts. Such records and other data shall be capable of verification through audit and analysis by BUYER and be available to BUYER at SELLER's facility for BUYER's examination and audit at all reasonable times from the date of the applicable Order until three (3) years after final payment under such Order. SELLER shall provide assistance to interpret such data if required by BUYER. Such examination shall provide BUYER with complete information regarding SELLER's performance for use in price negotiations with SELLER relating to existing or future Orders for Products (including but not limited to negotiation of equitable adjustments for changes and termination/obsolescence claims pursuant to Article 14.0, "CHANGES"). BUYER shall treat such information as confidential. 13.0 CHANGES TO SPECIFICATIONS With respect to each Product, SELLER shall notify BUYER in writing whenever SELLER's design or development activities indicate the need for any configuration detail or function of such Product to differ from the Product that has been qualification tested or previously delivered or from the configuration in Seller's approved design. With respect to each Product, SELLER shall obtain BUYER's approval prior to incorporation of: a. Changes which alter the form, fit or function of such Product; b. Changes which affect the repair or replacement interchange ability of such Product; c. Changes to processes after construction of the qualification test Product; d. Changes involving material or component substitution or finish changes; e. Changes that effect the downward compatibility of the Product; f. Changes which alter the weight, center of gravity or moment of inertia of such Product. If BUYER requests, SELLER shall submit a supplement to the applicable qualification report to document and qualify the above changes. 14.0 CHANGES BUYER's Material Representative may at any time by written change Order make reasonable changes within the general scope of an Order in any one or more of the following: (a) drawings, designs or specifications; (b) shipping or packing; (c) place of 9 inspection, delivery or acceptance; (d) adjustments in quantities and delivery schedules, or both; and (e) the amount of BUYER-furnished property. SELLER shall proceed immediately to perform the Order as changed. If any such change causes an increase or decrease in the cost of, or the time required for, the performance of any part of the work, whether changed or not changed by the change Order, an equitable adjustment shall be made in the price of or the delivery schedule for those Products affected, and the applicable Order and any affected pricing shown in Attachment "A" shall be modified in writing accordingly. Any claim by SELLER for adjustment under this Article must be received by BUYER in writing within thirty (30) days from the date of receipt by SELLER of the written change Order or within such further time as the parties may agree in writing or such claim shall be deemed waived. Nothing in this paragraph shall excuse SELLER from proceeding with an Order as changed, including failure of the parties to agree on any adjustment to be made under this paragraph. If SELLER considers that the conduct of any of BUYER's employees has constituted a change hereunder, SELLER shall immediately notify BUYER in writing as to the nature of such conduct and its effect on SELLER's performance. PENDING DIRECTION FROM BUYER'S MATERIAL REPRESENTATIVE, SELLER SHALL TAKE NO ACTION TO IMPLEMENT ANY SUCH CHANGE. 15.0 INVOICE AND PAYMENT A separate invoice shall be issued for each shipment of Products. Unless otherwise specified in the applicable Order, no invoice may be issued prior to shipment of the Products. Payment shall be Net 30 days. Payment due dates shall be computed from (a) the date of receipt of the Product, (b) the date of receipt of a correct invoice or (c) the scheduled delivery date of such Product, whichever is last, up to and including the date BUYER's check is mailed. All payments are subject to adjustment for shortages, credits and rejections. Invoices without this information will be considered incomplete and return for correction. Mail to: Boeing Defense & Space - Irving Co. P.O. Box 152707 Irving, Texas 75015-2707 Attn: Accounts Payable 16.0 PACKAGING AND SHIPPING SELLER shall prepare for shipment and suitably pack all Products to prevent damage or deterioration, or comply with any special instructions stated in the applicable Order. BUYER shall pay no charges for preparation, packing, crating or cartage unless stated in the applicable Order. BUYER's Order numbers and part numbers must be indicated on the applicable Bill of Lading or packing list. All shipments will be made via UPS GROUND. Any deviation from this method must be authorized by the BUYER, or the BUYER's Material Representative. 10 17.0 WARRANTY It is BUYER's expectation to receive 100% defect-free Product. SELLER warrants that all Products delivered shall: (a) be free from defects in material and workmanship; (b) conform to the requirements of the Order including, but not limited to, the applicable descriptions, specifications and drawings, and (c) be free from defects in design and fit for the intended purpose for a period of three (3) years from date of delivery. Products proved to be in non-conformance with the requirements stated above shall be returned to SELLER pursuant to Article 10.2, "Inspection and Rejection". The warranty does not extend to any Product supplied by SELLER which has been subjected to misuse, neglect or accident. 18.0 TERMINATION FOR DEFAULT BUYER and/or SELLER may terminate this Agreement by written notice to the other party upon the happening of any of the following events: a. The SELLER and/or SELLER's Agent, or BUYER, seeks relief under any provision of the bankruptcy or insolvency laws, or is adjudicated bankrupt or insolvent, or in the event a receiver is appointed for all, or substantially all, of its property; b. If the SELLER defaults in the performance of its obligations under this Agreement and fails to correct such default within thirty (30) days of written notice by BUYER; c. If SELLER fails to demonstrate to BUYER's satisfaction the ability to meet the specifications referenced in Attachment "A". In the event of BUYER's termination for default, SELLER must be notified of such default in writing and given thirty (30) days from receipt of notice of default. SELLER shall be liable for all costs and expenses for non- delivered finished goods, raw material, work in process, components, SELLER's commitments to its sources of supply and any damages incurred by SELLER under this Agreement, or Orders released in conjunction with this Agreement that occur prior to any cancellation. 19.0 TERMINATION FOR CONVENIENCE BUYER may terminate the performance of the work under this Agreement in whole at any time, or from time to time in part, by written notice to SELLER. Upon receipt of such notice, SELLER shall, unless the notice directs otherwise, immediately discontinue all work and the placing in all orders for materials, facilities, and supplies in connection with performance of this order and shall proceed to cancel promptly all existing orders and terminate all subcontracts insofar as such orders or subcontracts are chargeable to this order. Upon the termination of work under this order, full and complete settlement of 11 all claims of SELLER with respect to the termination work shall be made as follows: (Reference Article 12.0 "EXAMINATION OF RECORDS") a. Shipments due forty-five (45) calendar days or less from date of notification are not cancelable. b. Cancellation of shipments for individual part numbers due forty-six (46) calendar days or more from date of notification will be at no charge to BUYER. Under no circumstances shall BUYER'S cancellation liability for all materials, subassemblies, or finished goods exceed the agreed to unit price times the quantity of undelivered units. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR INDIRECT OR CONSEQUENTIAL DAMAGES. 20.0 FORCE MAJEURE Neither party shall be liable in damages for delay in delivery due to any causes beyond the control or without its fault or negligence including, without limitation, acts of God or the public enemy, acts of the government, fires, flood, epidemics, quarantine restrictions, strikes, freight embargo, and unusually severe weather. SELLER and/or BUYER shall notify the other in writing of such causes within two (2) scheduled working days after one first learns of same. 21.0 RESPONSIBILITY FOR PROPERTY On delivery to SELLER or manufacture or acquisition by it of any materials, parts, tooling or other property, title to any of which is with BUYER, SELLER shall assume the risk of and be responsible for any loss thereof or damage thereto. In accordance with the provisions of an Order, but in any event on completion thereof, SELLER shall return such property to BUYER in the condition in which it as received except for reasonable wear and tear and except to the extent that such property has been incorporated in Products delivered under such Order or has been consumed in the normal performance of work under such Order. 22.0 TECHNOLOGICAL DEVELOPMENTS SELLER shall promptly advise BUYER of technological advances which are known, or become known, to SELLER over the course of performance of its obligations under this Agreement, which may result in the product(s) having added value to BUYER. Should BUYER elect to incorporate such advances, it shall do so pursuant to the conditions of Article 13.0, "CHANGES TO SPECIFICATIONS". 12 22.1 PROPRIETARY INFORMATION Proprietary Information Agreement Number 91-3014 dated October 30, 1991, shall remain in force through the term of this Agreement and is incorporated, by reference, into this Agreement. 23.0 COMPLIANCE WITH FEDERAL, STATE AND LOCAL LAWS SELLER warrants that in the performance of each Order it has complied with and will comply with all applicable federal, state and local laws and ordinances and all Orders, rules and regulation thereunder. In SELLER's invoice or other form satisfactory to BUYER, SELLER shall certify that the Products covered by the applicable Order were produced in compliance with Sections 6, 7, and 12 of the Fair Labor Standard Act (29 U.S.C. 201-219), as amended, and the regulations and Orders of the U.S. Department of Labor issued under Section 14 thereof. The "Equal Opportunity" clause in FAR 52.222-26,-35, -36 is incorporated herein by this reference, except "Contractor" shall mean SELLER. 23.1 CLEAN AIR ACT The item(s) to be delivered under this Agreement may be manufactured using Class 1 ozone depleting substances and the following warning statement shall apply to such items(s): WARNING: MANUFACTURED WITH CFC-11, 12, 13, 111, 112, 113, 114, 115, 211, 212, 213, 214, 215, 216, 217, HALONS 1211, 1301, 2402, CARBON TETRACHLORIDE OR METHYL CHLOROFORM SUBSTANCES WHICH HARM PUBLIC HEALTH AND ENVIRONMENT BY DESTROYING OZONE IN THE UPPER STRATOSPHERE. The item(s) to be delivered under this Agreement may contain Class 1 ozone depleting substances and the following warning statement shall apply to such item(s): WARNING: MANUFACTURED WITH CFC-11, 12, 13, 111, 112, 113, 114, 115, 211, 212, 213, 214, 215, 216, 217, HALONS 1211, 1301, 2402, CARBON TETRACHLORIDE OR METHYL CHLOROFORM SUBSTANCES WHICH HARM PUBLIC HEALTH AND ENVIRONMENT BY DESTROYING OZONE IN THE UPPER STRATOSPHERE. It is agreed that the above warning statements satisfy the requirement of the Clean Air Act Amendments of 1990 (Section 611), Title 40 CFR Part 82. Accordingly, no method of marking or tagging items shall be used unless the item is a chemical or chemical compound. 13 24.0 BUYER'S RIGHTS IN SELLER'S DATA, PATENTS AND TOOLING BUYER shall have an irrevocable, nonexclusive, free license to use, and license others to use on BUYER's behalf, all of SELLER's patents, designs, processes, drawings, technical data and tooling related to the development, production, maintenance or rework of any Product; provided, however, that such license is conditioned upon the occurrence of one or more of the following events: a. Institution of reorganization, arrangement or liquidation proceedings by or against SELLER; b. Failure of SELLER's trustee in bankruptcy or SELLER as debtor in possession to assume any Order within sixty (60) days after a bankruptcy petition was filed; c. SELLER's insolvency; d. Appointment of a trustee or receiver for SELLER's property or business; e. Assignment for the benefit of creditors of SELLER; f. SELLER's suspension of production of all or any of such Product; g. SELLER's suspension of business operations; h. Cancellation of any Order in whole or in part pursuant to Article 18.0, "TERMINATION FOR DEFAULT"; or i. The acquisition of SELLER by, or SELLER's sale of any or all of its rights to manufacture such Product to, a third party, when the sale of any or all of those rights precludes in any way, shape, or form the SELLER's ability to manufacture and deliver any or all of those Products listed on Attachment "A". In support of the license granted herein, and without further cost to BUYER, SELLER shall provide all assistance BUYER requires to permit the immediate transfer of the patents, designs, processes, drawings, technical data and tooling to BUYER in a manner that satisfies BUYER's production requirements. 25.0 NOTICES Notices and other communications shall be given in writing to the respective party as follows: 25.1 ADDRESSES To BUYER: BOEING DEFENSE & SPACE - IRVING CO. 3131 STORY ROAD WEST IRVING, TEXAS 75038 ATTN: PROCUREMENT REPRESENTATIVE MAIL STOP: TR-41 14 To SELLER: CORY COMPONENTS 2201 ROSECRANS AVE. EL SEGUNDO, CALIFORNIA 90245 ATTN: MR. BRIAN GAMBERG 25.2 EFFECTIVE DATE The date on which any such communication is delivered to the addressee is the effective date of such communication. 26.0 PUBLICITY SELLER may not, and shall require that its subcontractors and suppliers of any tier may not, cause or permit to be released any publicity, advertisement, news release, public announce, or denial or confirmation of the same, in whatever form, regarding any aspect of any Order without BUYER's prior written approval. 27.0 FACILITIES SELLER shall bear all risk of providing adequate facilities and equipment to perform each Order in accordance with the terms thereof. If any contemplated use of government or other facilities or equipment is not permitted by the government or is not available for any other reason, SELLER shall be responsible for arranging for equivalent facilities and equipment at no costs to BUYER. Any failure to do so does not excuse any deficiencies in SELLER's performance or affect BUYER's right to cancel under Article 18.0 "TERMINATION FOR DEFAULT", or under any provision of law. 28.0 RELIANCE SELLER acknowledges that SELLER is an expert in all phases of the work involved in producing and supporting the Products, including but not limited to the designing, testing, developing, manufacturing, improving, and servicing of the Products. SELLER agrees that BUYER and BUYER's customers may rely on SELLER as an expert and SELLER will not deny any responsibility or obligation hereunder to BUYER or BUYER's customers on the grounds that BUYER or BUYER's customers provided recommendations or assistance in any phase of the work involved in producing or supporting the Products, including but not limited to BUYER's acceptance of specifications, test data or the Products. 29.0 ASSIGNMENT This Agreement shall insure to the benefit of and be binding on each of the parties hereto and their respective successors and assigns, provided however, that no assignment of any rights or delegation of any duties under such Agreement is binding on either party unless the other party's written consent has first been obtained. Notwithstanding the above, SELLER may assign claims for monies due or to become due under any Order provided that BUYER may recoup or setoff any amounts covered by any such assignment against any indebtedness of SELLER to BUYER, whether arising before or after the date of the 15 assignment or the date of this Agreement, and whether arising out of any such Order or any other agreement between the parties. BUYER may settle all claims arising out of any Order, including termination claims, directly with SELLER. BUYER may unilaterally assign any rights or title to property under this Agreement to any wholly-owned subsidiary of The Boeing Company. 30.0 SUBCONTRACTING SELLER may not procure any Product from a third party in a completed or a substantially completed form without BUYER's prior written consent. 31.0 NOTICE OF LABOR DISPUTES SELLER shall immediately notify BUYER of any actual or potential labor dispute that may disrupt the timely performance of an Order. SELLER shall include the substance of this Article, including this sentence, in any subcontract relating to an Order if a labor dispute involving the subcontractor would have the potential to delay the timely performance of such Order. Each subcontractor, however, shall only be required to give the necessary notice and information to its next higher-tier subcontractor. 32.0 NON-WAIVER Neither party's failure at any time to enforce any provision of this Agreement does not constitute a waiver of such provision or prejudice the other party's right to enforce such provision at any subsequent time. 33.0 HEADING Article and paragraph headings used in this Agreement are for convenience reference only and do not affect the interpretation of the Agreement. 34.0 PARTIAL INVALIDITY If any provision of this Agreement is or becomes void or unenforceable by force or operation of law, the other provisions shall remain valid and enforceable. 35.0 APPLICABLE LAW; JURISDICTION This Agreement shall be governed by, subject to and construed according to the laws of the State of Texas. For purposes of applying Texas law, this Agreement shall be deemed to have been entered into and wholly performed in Texas. 36.0 TAXES 36.1 EXCLUSION OF TAXES IN PRICE All items purchased will be exempt from Texas State and local sales and use taxes under certificate number 1-91-0840170-4. 16 36.2 TAX CLAIMS In the event that SELLER invoices and collects a tax for a state or local taxing authority that SELLER should not have collected from BUYER because of 36.1 above, SELLER shall promptly refund to BUYER the amount of tax collected by SELLER. 37.0 ENTIRE AGREEMENT; ORDER OF PRECEDENCE This Agreement sets forth the entire agreement, and supersedes any and all other agreements, understandings, representations, and communications between BUYER and SELLER, whether written or oral, related to the subject matter of such Order. In addition to the documents previously incorporated herein by reference, the documents listed below are by this reference made a part of this Agreement: A. Specification Control Documents. B. Any other exhibits or documents agreed to by the parties to be a part of this Agreement. In the event of a conflict or inconsistency between any of the terms of the following documents, the following order of precedence shall control: A. Purchase Agreement B. Order C. Specification Control Drawing (if applicable) D. Any other exhibits or documents the parties agree shall be part of this Agreement. 17 EXECUTED in duplicate as of the date and year first written above by the duly authorized representatives of the parties. BUYER: SELLER: BOEING DEFENSE & SPACE - IRVING CO. CORY COMPONENTS /s/ John Chiarello /s/ Brian Gamberg - ---------------------------- ------------------------------ John Chiarello Brian Gamberg Contract Administrator/Buyer President 3-21-95 3-15-95 - ---------------------------- ------------------------------ Date Date /s/ T.D. (Tim) Fehr - ---------------------------- T.D. (Tim) Fehr Vice President - CAS 5 May 95 - ---------------------------- Date 18 ATTACHMENT "A" SPECIFICATIONS AND PRICING TO AGREEMENT NO. 9423JC4548 5 YEAR SPEC NUMBER EST. USAGE PRICE ----------- ---------- ----- S906-70293-111 * 13,800 EA $20.58 EA S906-70293-112 30,900 EA $16.44 EA S906-70293-113 * 10,200 EA $45.95 EA S906-70293-114 * 10,200 EA $23.85 EA S906-70293-115 30,900 EA $26.55 EA S906-70293-210 30,900 EA $ 7.77 EA S906-70297-16 49,500 PR $20.79 EA S906-70297-28 148,500 PR $ 2.88 PR S906-70297-29 49,500 EA $22.97 EA S906-70297-30 49,500 EA $53.22 EA S906-70293-221 *USAGE EST. $21.58 EA SHARED WITH S906-70293-111 S906-70293-222 *USAGE EST. $24.85 EA SHARED WITH S906-702093-114 S906-70293-225 * USAGE EST. $46.95 EA SHARED WITH S906-70293-113 NOTE: QUANTITIES SHOWN ARE ESTIMATES FOR PLANNING PURPOSES ONLY AND DO NOT REPRESENT A FIRM COMMITMENT. 19 ATTACHMENT "B" LEADTIME TO AGREEMENT NO. 9423JC4548 LEADTIME IN WEEKS SPEC NUMBER 1995 1996 1997 1998 1999 S906-70293-111 10 8 8 8 8 S906-70293-112 10 8 8 8 8 S906-70293-113 10 8 8 8 8 S906-70293-114 10 8 8 8 8 S906-70293-115 10 8 8 8 8 S906-70293-210 10 8 8 8 8 S906-70297-16 10 8 8 8 8 S906-70297-28 10 8 8 8 8 S906-70297-29 10 8 8 8 8 S906-70297-30 10 8 8 8 8 S906-70293-221 10 8 8 8 8 S906-70293-222 10 8 8 8 8 S906-70293-225 10 8 8 8 8 20 ATTACHMENT "C" SUPPLIER SCHEDULING PROGRAM TO AGREEMENT NO. 9423JC4548 BUYER (Irving, Texas Plant) shall implement a Supplier Scheduling Program ("Program") with SELLER based on BUYER's Program's disciplines and techniques. BUYER and SELLER have agreed to the following terms and conditions relating to BUYER's Program: 1. BUYER shall provide SELLER with educational training on BUYER's Program. 2. BUYER shall eliminate the processing of formal, individual Purchase Orders. 3. BUYER shall, on a weekly basis, process and provide SELLER with BUYER's Supplier Scheduling Reports ("Reports"). An example of this Report is provided in Attachment "D". 4. Each Report provided to SELLER by BUYER shall contain the following information: A. Each Report shall identify BUYER's and SELLER's part number. B. On each report an asterisk ("*"), if any, shall precede each line item that identifies quantities and specific dates which represents BUYER's confirmed release requirements, and shall be construed as SELLER's authorization to manufacture and ship such products to BUYER in the quantities and in accordance with the dates specified on the Report. C. Line items that contain quantities and specific dates, and are not preceded with an asterisk, represent BUYER's offer to purchase such quantities of product(s). SELLER shall indicate its acceptance, acceptance with modification or rejection to BUYER's offer within three (3) business days of receipt of BUYER's Report. If, through no fault of the BUYER, SELLER fails to respond by the close of business on the third (3rd) working day after receipt of the BUYER's Report, BUYER shall proceed as though the SELLER had accepted. ("Silence is acceptance/approval"). On an existing committed receipt, SELLER shall have three (3) working days from date of BUYER's notification to SELLER to accept BUYER's reschedule in, reschedule out or cancellation. If, through no fault of the BUYER, SELLER fails to respond by the close of business on the third (3rd) working day after receipt of the BUYER's Report, BUYER shall proceed as though the SELLER had accepted. 21 Upon SELLER's verbal or written acceptance to BUYER's offer to purchase products, BUYER shall immediately modify the Report by adding an asterisk ("*") to the appropriate line item(s) to signify confirmation of order release. D. Those quantities listed in monthly and/or quarterly columns without an asterisk and/or specific date are to be used by the SELLER for "PLANNING" purpose ONLY. This information is subject to automatically change as our Material Requirements Planning (MRP) changes. These quantities shall be referred to as projected forecasts and/or planned orders. 5. For Item 4 refer to Attachment "D" which represents an example report. 6. SELLER shall reference the master agreement number and the contract number (See Attachment "D" on the packing lists and invoices issued under this Supplier Scheduling Section. See Article 15.0 "Invoice and Payment" and 16.0 "Packaging and Shipping" for additional references required. 7. SELLER agrees to be bound by BUYER's Supplier Scheduling program in the area of offer and acceptance (Refer to Item 4[C]). 8. SELLER agrees all terms and conditions of this Agreement shall apply to Supplier Scheduled part numbers, (i.e., selling price, lead-time, payment terms, FOB, warranties, etc.) as modified in this Supplier Scheduling section. 9. To the best of BUYER's knowledge, all fields of information on the Report are correct. If SELLER discovers any discrepancies or errors in the Report, SELLER shall notify BUYER in within three (3) working days of such discovery. 22 ATTACHMENT "D" AGREEMENT NO. 9423JC4548 PMS-SSS-B02 (VERSION: 10/22/92) BOEING AEROSPACE AND ELECTRONIC - IRVING 02/03/95 09:43 PAGE: 1 DELIVER TO: PCR SUPPLIER SCHEDULE REPORT FOR: CORY COMPONENTS Supplier Name Scheduler Report 02/03/95 CORY COMPONENTS BA&E-I 2201 ROSECRANS AVENUE 3131 STORY ROAD WEST EL SEGUNDO, CA 90245 IRVING, TX 75038 9423JC4548 SARAH HART 310-536-0034 214-659-2681 310-536-0206 214-659-4198 REFERENCE: MASTER AGREEMENT 9423JC4548
23 ATTACHMENT "D" BOEING DEFENSE & SPACE - IRVING CO. SUPPLIER SCHEDULE REPORT for XYZ CORPORATION P/N: DESC: P. O. XX-XXXXX START: 9-1-94 STOP: 8-31-99 SUPPLIER P/N: U/M: EA ABCD: A PRICE: L/T: 30 S/C AA REL TO DATE: 398 QTY TO STOCK: 298 QTY PAST DUE: 100 QTY ON DOCK: 0 LAST RCVD DATE: 04/24/91
NEXT NEXT JUN/91 JUL/91 AUG/91 SEPT/91 OCT/91 NOV/91 DEC/91 JAN/92 FEB/92 MAR/92 APR/92 MAY/92 QTR QTR - ---------------------------------------------------------------------------------------------------------------------------------- 100 150 195 0 0 235 0 0 85 205 0 150 70 55 06/10* 07/15 70 75 100 0 0 0 0 0 0 0 0 0 0 0 06/22 * - ---------------------------------------------------------------------------------------------------------------------------------- 200 150 195 0 0 235 0 0 85 205 0 150 140 130 - ----------------------------------------------------------------------------------------------------------------------------------
EXTERNAL NOTES: SHP: SPECIAL SHIPPING INSTRUCTIONS CXL: CANCEL IDENTIFIED SCHEDULE/QUANTITY R/I: RESCHEDULE-IN REQUEST R/O: RESCHEDULE-OUT REQUEST 24 AGREEMENT NO. D&SG/PIA-91-3014 PROPRIETARY INFORMATION AGREEMENT Effective October 30, 1991, The Boeing Company, Defense & Space Group, acting through its Electronics Systems Division, having an office at Seattle, Washington, and Cory Components, having an office at El Segundo, California, agree as follows: 1. The parties may exchange information, some of which may be Proprietary Information, as defined below, for the purposes of review, evaluation, new Boeing parts development and source selection in connection with 777 development efforts (hereinafter referred to as the "Project"). The parties desire to protect such Proprietary Information from unauthorized disclosure and use under the terms and conditions herein. 2. For purposes of this Agreement, Proprietary Information means information related to connectors and connector technology, including compliant pin connectors; and which is disclosed hereunder by one party to the other in connection with the Project; provided that, when disclosed, such information is in written or other permanent form and is identified as proprietary to the originating party by clear and conspicuous markings. Information not in written or other permanent form shall be considered Proprietary Information from time of disclosure, provided originating Party identifies such information as proprietary at the time of disclosure and sends receiving Party a detailed written description of the information, with such clear and conspicuous markings, within thirty (30) days of the disclosure. Page 1 of 5 3. Each party shall preserve Proprietary Information (other than Boeing parts drawings) received from the other party in confidence for a period of five (5) years from the effective date of this Agreement. During this period, each party shall not disclose such Proprietary Information to any third party without written authorization from the originating party. Proprietary Information in the form of a Boeing parts drawing shall be preserved in confidence, and shall not be disclosed to any third party without written authorization from Boeing, until such time as Boeing gives written notice to the other party that the drawing is no longer proprietary to Boeing. 4. Until such time as this Agreement shall terminate pursuant to paragraph 9, each party may use Proprietary Information received from the other party, but only for the purposes set forth in paragraph 1. Upon the expiration of the period set forth in paragraph 3, all limitations on use of Proprietary Information shall cease. 5. The obligations of this Agreement regarding disclosure and use of Proprietary Information shall be satisfied by each party through the exercise of the same degree of care (provided the degree of care is reasonable) used to restrict disclosure and use of its own information of like importance. 6. This Agreement shall not restrict disclosure or use of Proprietary Information that is: A. Known to the receiving party without restriction as to further disclosure when received, or thereafter is developed independently by the receiving party; or B. Obtained without restriction as to further disclosure from a source other than the originating party through no breach of confidence by such source; or Page 2 of 5 C. In the public domain when received, or thereafter enters the public domain through no fault of the receiving party; or D. Disclosed by the originating party to a third party, including the United States Government, without restriction as to further disclosure. 7. Proprietary Information shall remain the property of the originating party. Neither this Agreement nor the disclosure of Proprietary Information shall be construed as granting any right or license under any inventions, patents, copyrights, or the like, now or hereafter owned or controlled by either party. Any such disclosure shall not constitute any representation, warranty, assurance, guaranty or inducement concerning the infringement of any patent or other rights of others. No warranty of accuracy or completeness of any Proprietary Information is provided herein. 8. Proprietary Information, as well as notices and authorizations under this Agreement, shall be transmitted between the parties addressed as follows: Boeing Defense & Space Group Cory Components P.O. Box 3999 2201 Rosecrans Ave. Seattle, WA 98124-2499 El Segundo, CA 90245 Attention: J. Chiarello Attention: Brian Gamberg M/S OU-34 Telephone: (206) 342-3324 Telephone: (213) 536-0034 A party may change its address or designee by written notice to the other party. 9. This Agreement may be terminated by either party upon thirty (30) days written notice to the other. Unless thus earlier terminated, this Agreement shall terminate upon completion of the Project or upon Page 3 of 5 expiration of a period of three (3) years from the effective date set forth above, whichever occurs first. Termination of this Agreement for any reason shall not relieve either party of any obligation to preserve Proprietary Information received prior to termination in confidence pursuant to paragraph 3, and all such obligations shall continue until expiration of the period set forth in paragraph 3. 10. Upon termination, each party shall cease use of Proprietary Information received from the other party, and shall, upon request, utilize its best efforts to destroy all Proprietary Information, including copies thereof, then in its possession or control. Alternatively, at the request of the originating party, the receiving party shall return all such Proprietary Information and copies to the originating party. Notwithstanding the other provisions of this paragraph, each party may retain one copy of such Proprietary Information, but only for archival purposes. 11. Each party shall bear all costs and expenses incurred by it under or in connection with this Agreement. Nothing in this Agreement creates an obligation by either party to enter into a contract, subcontract, or other business relationship with the other party in connection with the Project. 12. The rights and obligations provided by this Agreement shall take precedence over specific legends or statements associated with Proprietary Information when received. 13. This Agreement contains the entire understanding between the parties, superseding all prior or contemporaneous communications, agreements, and understandings between the parties with respect to the disclosure and protection of Proprietary Information in connection Page 4 of 5 with the Project. This Agreement shall not be amended except by further written agreement executed by duly authorized representatives of the parties. IN WITNESS WHEREOF, the duly authorized representatives of the parties execute duplicate originals of this Agreement. THE BOEING COMPANY CORY COMPONENTS Defense & Space Group Electronics Systems Division By /s/ John Chiarello By /s/ Brian Gamberg ---------------------------- ------------------------------ Title Buyer Title President ------------------------- --------------------------- Date 10-30-91 Date 11/4/91 -------------------------- ---------------------------- Page 5 of 5 EX-10.16 52 EXHIBIT 10.16 PURCHASE AGREEMENT MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. AND CORY COMPONENTS INC. Agreement effective as of October 1, 1998 by and among the VIDEO SYSTEMS DIVISION OF MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., having offices at 1-4 Matsuo-Cho, Kadoma, Osaka 571, Japan, and the CORPORATE INTERNATIONAL TRADE DIVISION OF MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD., having offices at 3-2 Minamisemba 4-Chome, Chuo-Ku, Osaka 542-8588, Japan (collectively, the "Buyer"), and CORY COMPONENTS INC., having offices at 2201 Rosecrans Avenue, El Segundo, CA 90245, U.S.A. ("Seller"). 1. PURCHASE AND SALE Buyer may purchase from Seller and Seller may sell to Buyer a variety of "Products" (manufacturer's part numbers provided per Attachment A) in accordance with specifications prepared by Buyer. 2. TERM The term of this Agreement shall be for one (1) year commencing on the effective date hereof, and shall be renewed automatically for additional one (1) year periods at the end of the term unless either Seller or Buyer gives notice to the contrary at least three (3) months prior to the expiration of this Agreement, unless sooner terminated in accordance with the provisions of paragraph seven (7) hereof. If the quantities forecasted in Attachment A of this Agreement are not consumed by the Buyer during the specified period, and it results in excess inventory at the Seller, consideration to utilize this inventory must be given in the next agreement. 3. PRICE (a) Prices, minimum release quantities, estimated annual quantities, and lead times for the Products are set forth in Attachment A of this Agreement. Alterations to Attachment A hereof shall require the written agreement among the parties hereto. Prices are exclusive of any and all Federal, State and local sales, use, excise, and similar taxes and charges which shall be the responsibility of Buyer. (b) Any increase in Seller's material cost may be submitted to Buyer for evaluation. Acceptance of any increase is at the discretion of Buyer and the acceptance of any decrease in prices shall be at the discretion of Seller. 4. PAYMENT Payment on all Products purchased by Buyer shall be effected by the wire transfer in U.S. Dollars by the tenth (10th) day of the month subsequent to the month during which the corresponding bill of lading or air way bill is issued. 5. ORDERING OF PRODUCTS/DELIVERY (a) The purchase of Products pursuant to this Agreement shall be effected by issuance of Buyer's purchase orders. Such purchase orders shall reference this Agreement and shall include the part number, description, and unit quantities of Products, applicable prices, and requested delivery dates. All orders for Products are subject to Seller's acceptance which acceptance shall not be unreasonably delayed or withheld. The Products shall be delivered to Buyer on the delivery term FCA Los Angeles as defined in Incoterms 1990, and risk of and title to the Products shall pass to Buyer upon delivery to and receipt of the Products by Buyer. Buyer shall deliver the Products within the lead times specified in Attachment A unless otherwise agreed among the parties hereto. (b) Upon mutual written agreement between Buyer and Seller, additional Products can be added to this Agreement. 6. CHANGES At Buyer's option, Buyer may request, in writing, changes to any order, and may make changes to the specifications of the Products. Seller shall notify Buyer in writing as to the impact of each such change on the price, delivery schedule, and any other terms. Such change shall become effective only upon the signing of both parties of an amendment which incorporates the agreed upon price and terms of the change. Changes to delivery schedules must be submitted at least sixty (60) days prior to the scheduled ship date. 7. TERMINATION (a) This Agreement may be terminated immediately for cause by either party in the event the other party: (i) shall become insolvent (ii) ceases to function as a going concern or (iii) fails to perform any of its material obligations hereunder so as to be in default and fails to cure sure default within thirty (30) days after written notice thereof. 2 (b) Notwithstanding termination of this Agreement, Buyer shall be liable for payment of all Products pursuant to orders accepted by Seller and delivered prior to the effective date of termination of this Agreement. Unless otherwise agreed among the parties hereto, and unless the termination of this Agreement occurs pursuant to Article 7(a) above, all purchase orders accepted by Seller prior to the termination of this shall be filled in accordance with this Agreement notwithstanding such termination. 8. SELLER'S LIMITED WARRANTY AND LIMITATION OF LIABILITIES Seller warrants to Buyer that Products purchased pursuant to this Agreement will conform to the applicable Buyer's specifications for such Products and that any value added work performed by Seller on any such Products will conform to applicable Buyer's specifications relative to such work. Buyer is deemed to have accepted the Products unless written notice of rejection is given within a reasonable time, which is agreed to be thirty (30) days after receipt. Notwithstanding the foregoing, the passing of such thirty (30) day period shall not release Seller from its obligation to promptly replace any defective Products discovered within eighteen (18) months after the arrival of the Products at Buyer's premises. No return of Products will be accepted by Seller without a return material authorization number (RMA No.), which issuance shall not be unreasonably delayed or withheld. Returned Products must be in acceptable shipping cartons and must be complete with all packing materials. If Returned Products are claimed to be defective, a reasonably complete description regarding the nature of the defect must be included with all Returned Products. 9. INFRINGEMENT INDEMNITY Seller shall defend at their expense any suit against Buyer or its customers based on a claim that any item furnished under this order or the normal use or sale thereof infringes any third party's patent, copyright, other than claims under patents covering combinations of such items not furnished by Seller if such infringement would have been avoided without such combination, and shall indemnify Buyer from and against any liabilities, costs and damages arising from any such suit, provided that Seller is notified in writing of the suit and given authority information and assistance at Seller's reasonable expense for the defense of same. If the use or sale of said item is enjoined as a result of such suit, Seller, at no expense to Buyer or its customers, shall promptly obtain for Buyer and its customers the right to use and sell said item or shall promptly substitute equivalent item acceptable to Buyer and its customer. 3 10. FORCE MAJEURE Neither party shall be liable for failure to fulfill its obligations contained herein or for delays in delivery due to causes beyond its reasonable control including, but not limited to, acts of God, acts or omissions of the other party, acts or omissions of civil or military authority, Government priorities, material shortages, fire, strikes, floods, epidemics, quarantine restrictions, riots, war, and delays in transportation, but shall not include shortages of parts, materials or funds or the inability to obtain transportation. The time for performance of any such obligation shall be extended for the time period lost by reason of the delay. 11. NOTICES Any notice provided for or permitted in this Agreement will be deemed to have been given when copy is faxed and a signed copy is returned to the party sending request for change. A follow-up copy will be mailed to the address set forth above. 12. QUALITY SURVEILLANCE BY BUYER'S CUSTOMER Seller shall allow Buyer and Buyer's customer to enter Seller's facilities to determine and verify the quality of the work and material, at any stage of production, which will be used in the Buyer's product. Entry shall also be allowed to representatives of the Federal Aviation Administration. Such investigations by the Federal Aviation Administration will be performed with the knowledge of, and jointly with, Buyer. 13. DISPUTE RESOLUTIONS All disputes under this Agreement shall be resolved as follows: (a) COOPERATION The parties agree to cooperate with each other to attempt to settle all disputes arising under this Agreement without resorting to mediation or arbitration. (b) MEDIATION If the parties are unsuccessful in resolving a dispute within forty-five (45) days from the date the parties begin attempting to resolve it, either Party may submit the dispute to mediation in the location of the defending party. Neither party may initiate arbitration proceedings until mediation is completed. (c) ARBITRATION All disputes which are not resolved through cooperation or mediation shall be finally resolved by binding arbitration in the location of the defending party in 4 accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce in effect at the time. Each party shall bear its own costs of preparing and presenting its case; the costs of arbitration, including the fees of the arbitrators, shall be shared equally by the parties unless the award provides otherwise. 14. GENERAL (a) This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements relating thereto, written or oral, between the parties. This Agreement may be modified only by writings signed by authorized representatives of both parties. (b) The parties agree that the terms and conditions of this Agreement shall control, notwithstanding conflicting or additional terms on, any purchase orders, sales acknowledgement, confirmation or other document issued by either party. Where the terms and conditions of this Agreement and Exhibit A hereto conflict, the terms and conditions of this Agreement shall take precedence. (c) This Agreement shall be governed by and construed in accordance with the laws of the Japan. IN WITNESS WHEREOF, the parties have duly executed this Agreement effective as of the date first set forth above. CORY COMPONENTS INC. MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD, VIDEO SYSTEMS DIVISION By: /s/ Christina J. Shiley-Kukuruda By: /s/ K. Yamamoto -------------------------------- ----------------------- Name: Christina J. Shiley-Kukuruda Name: K. Yamamoto Title: President Title: Director MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD, CORPORATE INTER- NATIONAL TRADE DIVISION By: /s/ T. Horinchi ----------------------- Name: T. Horinchi Title: Director 5 EX-10.17 53 EXHIBIT 10.17 GENERAL TERMS AGREEMENT between THE BOEING COMPANY and TRI-STAR Electronics International, Inc. Number BCA-6-5632-0032 i GENERAL TERMS AGREEMENT TABLE OF CONTENTS
SECTION TITLE - ------- ----- 1.0 DEFINITIONS 2.0 ISSUANCE OF PURCHASE ORDERS AND APPLICABLE TERMS 2.1 Issuance of Purchase Orders 2.2 Acceptance of Purchase Orders 2.3 Written Authorization to Proceed 2.4 Rejection of Purchase Orders 3.0 TITLE AND RISK OF LOSS 4.0 DELIVERY 4.1 Requirements 4.2 Delay 4.3 Notice of Labor Disputes 5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES 5.1 Review 5.2 Resident Representatives 6.0 INVOICE AND PAYMENT 7.0 PACKING AND SHIPPING 8.0 QUALITY ASSURANCE, INSPECTION REJECTION AND ACCEPTANCE 8.1 Controlling Document 8.2 Seller's Inspection 8.3 Boeing's Inspection and Rejection 8.4 Federal Aviation Administration or Equivalent Government Agency Inspection 8.5 Retention of Records ii SECTION TITLE - ------- ----- 8.6 Source Inspection 8.7 Language for Technical Information 9.0 EXAMINATION OF RECORDS 10.0 CHANGES 10.1 General 10.2 Model Mix 11.0 PRODUCT ASSURANCE 12.0 TERMINATION FOR CONVENIENCE 13.0 EVENTS OF DEFAULT AND REMEDIES 14.0 EXCUSABLE DELAY 15.0 SUSPENSION OF WORK 16.0 TERMINATION OR CANCELLATION; INDEMNITY AGAINST SUBCONTRACTOR'S CLAIMS 17.0 ASSURANCE OF PERFORMANCE 18.0 RESPONSIBILITY FOR PROPERTY 19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS 20.0 PROPRIETARY INFORMATION AND ITEMS 21.0 COMPLIANCE WITH LAWS 22.0 INTEGRITY IN PROCUREMENT 23.0 INFRINGEMENT 24.0 BOEING'S RIGHTS IN SELLER'S, PATENTS COPYRIGHTS, TRADE SECRETS AND TOOLING 25.0 NOTICES 25.1 Addresses 25.2 Effective Date 25.3 Approval or Consent
iii
SECTION TITLE - ------- ----- 26.0 PUBLICITY 27.0 PROPERTY INSURANCE 27.1 Insurance 27.2 Certificate of Insurance 27.3 Notice of Damage or Loss 28.0 RESPONSIBILITY FOR PERFORMANCE 28.1 Subcontracting 28.2 Reliance 28.3 Assignment 29.0 NON-WAIVER 30.0 HEADINGS 31.0 PARTIAL INVALIDITY 32.0 APPLICABLE LAW 33.0 AMENDMENT 34.0 LIMITATION 35.0 TAXES 35.1 Inclusion of Taxes in Price 35.2 Litigation 35.3 Rebates 36.0 FOREIGN PROCUREMENT OFFSET 37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE 37.1 Entire Agreement 37.2 Incorporated By Reference 37.3 Order of Precedence 37.4 Disclaimer
iv AMENDMENT
AMEND NUMBER DESCRIPTION DATE APPROVAL - ------ ----------- ----- --------
v GENERAL TERMS AGREEMENT RELATING TO BOEING PRODUCTS THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of July 1, 1998, by and between Tri-Star Electronics, a Delaware corporation, with its principal office in El Segundo, California ("Seller"), and The Boeing Company, a Delaware corporation with its principal office in Seattle, Washington acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS A. Boeing produces commercial airplanes. B. Seller manufactures and sells certain goods and services for use in the production and support of such airplanes. C. Seller desires to sell and Boeing desires to purchase certain of Seller's goods and services in accordance with the terms of this Agreement. Now therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: 1 AGREEMENTS 1.0 DEFINITIONS The definitions set forth below shall apply to this Agreement, any Order, and any related Special Business Provisions ("SBP"). Words importing the singular number shall also include the plural number and vice versa. (a) "Customer" means any owner, operator or user of Products and any other individual, partnership, corporation or entity which has or acquires any interest in the Products from, through or under Boeing. (b) "Derivative" means any new model airplane designated by Boeing as a derivative of an existing Model airplane and which: (1) has the same number of engines as the existing model airplane; (2) utilizes essentially the same aerodynamic and propulsion design, major assembly components, and systems as the existing model airplane and (3) achieves other payload/range combinations by changes in body length, engine thrust, or variations in certified gross weight. (c) "Drawing" means an automated or manual depiction of graphics or technical information representing a Product or any part thereof and which includes the parts list and specifications relating thereto. (d) "End Item Assembly" means any Product which is described by a single part number and which is comprised of more than one component part. (e) "FAA" means the United States Federal Aviation Administration or any successor agency thereto. (f) "FAR" means the Federal Acquisition Regulations in effect on the date of this Agreement. (g) "Materiel Representative" means the individual designated from time to time, by Boeing as being primarily responsible for interacting with Seller regarding this Agreement and any Order. (h) "Order" means each purchase order issued by Boeing and accepted by Seller under the terms of this Agreement. Each Order is a contract between Boeing and Seller. (i) "Product" means goods, including components and parts thereof, services, documents, data, software, software documentation and other information or items furnished or to be furnished to Boeing under any Order, including Tooling except for Rotating Use Tools. (j) "Purchase on Assembly Production Detail Part (POA)" means a component part of an End Item Assembly. (k) "Shipset" means the total quantity of a given part number or material necessary for production of one airplane. 2 (l) "Spare" means any Product, regardless of whether the Product is an End Item Assembly or a Purchased on Assembly Production Detail Part, which is intended for use or sale as a spare part of a production replacement. (m) "Tooling" means all tooling, as defined in Boeing Document D33200 "Boeing Suppliers' Tooling Document" and/or described on any Order, including but not limited to Boeing-Use Tooling, Supplier-Use Tooling and Common-Use Tooling as defined in Boeing Document D953W001, "General Operations Requirements for Suppliers," and Rotating-Use Tooling as defined in Boeing Document M31-13, "Accountability of Inplant/Outplant Special (Contract) Tools." For purposes of this Agreement, in the documents named in this subparagraph, the term "Supplier Use Tooling" shall be changed to Seller Use Tooling. 2.0 ISSUANCE OF ORDERS AND APPLICABLE TERMS 2.1 ISSUANCE OF ORDERS Boeing may issue Orders to Seller from time to time. Each Order shall contain a description of the Products ordered, a reference to the applicable specifications and Drawings, the quantities and prices, the delivery schedule, the terms and place of delivery and any special conditions. Each Order which incorporates this Agreement shall be governed by and be deemed to include the provisions of this Agreement. Purchase Order Terms and Conditions, Form D1-4100-4045, Form P252T do not apply. Any other purchase order terms and conditions which may conflict with this Agreement, do not apply to the Orders. 2.2 ACCEPTANCE OF ORDERS Each Order is Boeing's offer to Seller and acceptance is strictly limited to its terms. Boeing will not be bound by and specifically objects to any term or condition which is different from or in addition to the provisions of the Order, whether or not such term or condition will materially alter the Order. Seller's commencement of performance or acceptance of the Order in any manner shall conclusively evidence Seller's acceptance of the Order as written. Boeing may revoke any Order prior to Seller's acceptance or Seller's commencement of performance. 2.3 WRITTEN AUTHORIZATION TO PROCEED Boeing's Materiel Representative may give written authorization to Seller to commence performance before Boeing issues an Order. If Boeing in its written authorization specifies that an Order will be issued, Boeing and Seller shall proceed as if an Order had been issued. This Agreement, the applicable SBP and the terms stated in the written authorization shall be deemed to be a part of Boeing's offer and the parties shall promptly agree on any open Order terms. If Boeing does not specify in its written authorization that an Order shall be issued, Boeing's obligation is strictly limited to the terms of the written authorization. For purposes of this Section 2.3, written authorization includes electronic transmission chosen by Boeing. If Seller commences performance before an Order is issued or without receiving Boeing's prior authorization to proceed, such performance shall be at Seller's expense. 3 2.4 REJECTION OF PURCHASE ORDER Seller is only required to formally respond to an Order when an exception is noted and Seller thereby rejects the Order. Any rejection by Seller of an Order shall specify the reasons for rejection and any changes or additions that would make the Order acceptable to Seller; provided, however, that Seller may not reject any Order for reasons inconsistent with the provisions of this Agreement or the applicable SBP. 3.0 TITLE AND RISK OF LOSS Title to and risk of any loss of or damage to the Products shall pass from Seller to Boeing at the F.O.B. point as specified in the applicable Order, except for loss or damage thereto resulting from Seller's fault or negligence. 4.0 DELIVERY 4.1 REQUIREMENTS Deliveries shall be strictly in accordance with the quantities, the schedule and other requirements specified in the applicable Order. Seller may not make early deliveries without Boeing's prior written authorization. Seller may not make partial deliveries without Boeing's prior authorization. Deliveries which fail to meet Order requirements may be returned to Seller at Seller's expense. 4.2 DELAY Seller shall notify Boeing immediately, of any circumstances that may cause a delay in delivery, stating the estimated period of delay and the reasons therefor. If requested by Boeing, Seller shall use additional effort, including premium effort, and shall ship via air or other expedited routing to avoid or minimize delay to the maximum extent possible. All additional costs resulting from such premium effort or premium transportation shall be borne by Seller with the exception of such costs attributable to delays caused directly by Boeing. Nothing herein shall prejudice any of the rights or remedies provided to Boeing in the applicable Order or by law. 4.3 NOTICE OF LABOR DISPUTES Seller shall immediately notify Boeing of any actual or potential labor dispute that may disrupt the timely performance of an Order. Seller shall include the substance of this Section 4.3, including this sentence, in any subcontract relating to an Order if a labor dispute involving the subcontractor would have the potential to delay the timely performance of such Order. Each subcontractor, however, shall only be required to give the necessary notice and information to its next higher-tier subcontractor. 5.0 ON-SITE REVIEW AND RESIDENT REPRESENTATIVES 5.1 REVIEW At Boeing's request, Seller shall provide at Boeing's facility or at a place designated by Boeing, a review explaining the status of the Order, actions taken or planned relating to the Order and any other relevant information. Nothing herein may be construed as a waiver of Boeing's rights to proceed against Seller because of any delinquency. Boeing's authorized representatives may enter Seller's plant at all reasonable times to conduct preliminary inspections and tests of the Products and work-in-progress. Seller shall include in its subcontracts issued in connection with an Order a like provision giving Boeing the right to enter the premises of Seller's subcontractors. When requested by Boeing, Seller shall accompany Boeing to Seller's subcontractors. 4 5.2 RESIDENT REPRESENTATIVES Boeing may in its discretion and for such periods as it deems necessary assign resident personnel at Seller's facilities. Seller shall furnish, free of charge, all office space, secretarial service and other facilities and assistance reasonably required by Boeing's representatives at Seller's plant. The resident team will function under the guidance of a Boeing manager. The resident team will provide communication and coordination to ensure timely performance of the Order. Boeing's resident team shall be allowed access to all work areas, Order status reports and management review necessary to assure timely performance and conformance with the requirements of each Order. Notwithstanding such assistance, Seller remains solely responsible for performing in accordance with each Order. 6.0 INVOICE AND PAYMENT Unless otherwise provided in the applicable Order, invoicing and payment shall be in accordance with SBP Section 7.0. 7.0 PACKING AND SHIPPING Seller shall (a) prepare for shipment and suitably pack all Products to prevent damage or deterioration, (b) where Boeing has not identified a carrier, secure lowest transportation rates, (c) comply with the appropriate carrier tariff for the mode of transportation specified by Boeing and (d) comply with any special instructions stated in the applicable Order. Boeing shall pay no charges for preparation, packing, crating or cartage unless stated in the applicable Order. Unless otherwise directed by Boeing, all standard routing shipments forwarded on one day must be consolidated. Each container must be consecutively numbered and marked as set forth below. Container and Order numbers must be indicated on the applicable bill of lading. Two copies of the packing sheets must be attached to the No. 1 container of each shipment and one copy in each individual container. Each pack sheet must include as a minimum the following: a) Seller's name, address and phone number; b) Order and item number; c) ship date for the Products; d) total quantity shipped and quantity in each container, if applicable; e) legible pack slip number; f) nomenclature; g) unit of measure; h) ship to if other than Boeing; i) warranty data and certification, as applicable; j) rejection tag, if applicable; k) Seller's certification that Products comply with Order requirements; and, l) identification of optional material used, if applicable. Products sold F.O.B. place of shipment must be forwarded collect. Seller may not make any declaration concerning the value of the Products shipped, except on Products where the tariff rating or rate depends on the released or declared value, and in such event the value shall be released or declared at the maximum value for the lowest tariff rating or rate. The following markings shall be included on each unit container: a) Seller's name; b) Seller's part number, if applicable; c) Boeing part number, if applicable; d) part nomenclature; e) Order number; f) quantity of Products in container; g) unit of measure; h) serial number, if applicable; i) date (quarter/year) identified as assembly or rubber cure date, if applicable; j) precautionary handling instructions or marking as required. In addition, the following markings/labels shall be included on each shipping container: a) Name and address of consignee; b) Name and address of consigner; c) Order number; d) Part number as shown on the Order; e) Quantity of Products in container; f) Unit of measure; g) Box number; h) Total number of boxes in shipment; and, i) Precautionary handling, labeling or marking as required. 5 8.0 QUALITY ASSURANCE, INSPECTION, REJECTION, & ACCEPTANCE 8.1 CONTROLLING DOCUMENT The controlling quality assurance document for Orders shall be as set forth in the SBP Section 4.0. 8.2 SELLER'S INSPECTION Seller shall inspect or otherwise verify that all Products and components thereof, including those procured from or furnished by subcontractors or Boeing, comply with the requirements of the Order prior to shipment to Boeing or Customer. Seller shall be responsible for all tests and inspections of the Product and any component thereof during receiving, manufacture and Seller's final inspection. Seller shall include on each packing sheet a certification that the Products comply with the requirements of the Order. 8.2.1 SELLER'S DISCLOSURE Seller will immediately notify Boeing when discrepancies in Seller's processes or Product are discovered or suspected for Products Seller has delivered. 8.2.2 SELLER'S ACCEPTANCE Seller shall provide with all shipments the following proof of acceptance by its Quality Assurance Department: (A) certified physical and metallurgical test reports where required by controlling specifications, or (B) a signed, dated statement on the packing sheet certifying its Quality Assurance Department has inspected the parts and they adhere to all applicable drawings and/or specifications. 6 8.3 BOEING'S INSPECTION AND REJECTION Unless otherwise specified on an Order, Products shall be subject to inspection by Boeing, notwithstanding any payment or prior inspection. Boeing may reject any Product which does not strictly conform to the requirements of the applicable Order. Boeing shall by notice, rejection tag or other communication notify Seller of such rejection. Whenever possible, Boeing may coordinate with Seller prior to disposition of the rejected Product(s), however, Boeing shall retain final disposition authority with respect to all rejections. At Seller's risk and expense, all such Products will be returned to Seller for immediate repair, replacement or other correction and redelivery to Boeing; provided, however, that with respect to any or all of such Products and at Boeing's election and at Seller's risk and expense, Boeing may: (a) return such Products without permitting any repair, replacement or other correction by Seller; (b) hold or retain such Products for repair by Seller or, at Boeing's election, for repair by Boeing with such assistance from Seller as Boeing may require; (c) hold such Products until Seller has delivered conforming replacements for such Products; (d) hold such Products until conforming replacements are obtained from a third party; (e) return such Products with instructions to Seller as to whether the Products shall be repaired or replaced and as to the manner of redelivery or (f) return such Products with instructions that they be scrapped upon final disposition by Boeing and Seller that the non-conforming Product(s) are not subject to repair or useable in another application for which they would be acceptable, and prior to the Products being scrapped, Seller shall render the Product(s) unusable. Seller shall also maintain, pursuant to their quality assurance system, records certifying destruction of the applicable Products. Said certification shall state the method and date of mutilation and destruction of the subject Product(s). Boeing shall have the right to review and inspect these records at any time it deems necessary. Failure to comply with these requirements shall be a material breach of this Agreement and grounds for default pursuant to GTA Section 13.0. All repair, replacement and other corrections and redelivery shall be completed within such time as Boeing may require. All costs and expenses, loss of value and any other damages incurred as a result of or in connection with nonconformance and repair, replacement or other correction may be recovered from Seller by an equitable price reduction, set-off or credit against any amounts that may be owed to Seller under the applicable Order or otherwise. Boeing may revoke its acceptance of any Products and have the same rights with regard to the Products involved as if it had originally rejected them. 7 8.4 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT GOVERNMENT AGENCY INSPECTION Representatives of Boeing, the FAA or any equivalent government agency may inspect and evaluate Seller's plant including, but not limited to, Seller's and subcontractor's facilities, systems, data, equipment, inventory holding areas, procedures, personnel, testing, and all work-in-process and completed Products. For purposes of this Section 8.4, equivalent government agency shall mean those governmental agencies so designated by the FAA or those agencies within individual countries which maintain responsibility for assuring aircraft airworthiness. 8.5 RETENTION OF RECORDS Quality assurance records shall be maintained on file at Seller's facility and available to Boeing's authorized representatives. Seller shall retain such records for a period of not less than seven (7) years from the date of final payment under the applicable Order. 8.6 SOURCE INSPECTION If an Order contains a notation that "100% Source Inspection" is required, the Products shall not be packed for shipment until they have been submitted to Boeing's quality assurance representative for inspection. Both the packing list and Seller's invoice must reflect evidence of this inspection. 8.7 LANGUAGE FOR TECHNICAL INFORMATION All reports, drawings and other technical information submitted to Boeing for review or approval shall be in English and shall employ the units of measure customarily used by Boeing in the United States of America. 8.8 FAA PART MANUFACTURING APPROVAL (PMA) REQUIREMENTS Where Seller is required to obtain FAA approval to sell Product(s) to third parties pursuant to Federal Aviation Regulation 21.303, the following statement shall be included on the pack sheet signed by an authorized representative of Seller with responsibility for the conformity of the Product to the FAA type certified engineering drawing: "It is hereby certified that, (a) the parts and/or materials reflected herein were produced under a FAA approved manufacturing and Quality Assurance system/methods as set forth in Federal Aviation Regulation 21.303, and (b) all parts and/or materials are certified new, conforms to the design data and are in airworthy condition". In the event such attestation cannot be made, a copy of the latest detail drawings must accompany the Product??. In order to comply with Federal Aviation Regulation 45.15, each Product must be permanently and legibly marked as follows: (1) "FAA-PMA" (2) Name, trademark or symbol of manufacturer (3) Part number (4) Name and model of each type certified product on which the approved part can be used. If Product is too small to get all the above data on it, a tag may be used, attached to the Product or container. If usage is extensive, reference to a specific manual or catalog for the information is permissible. See regulation for detail. 8 9.0 EXAMINATION OF RECORDS Seller shall maintain complete and accurate records showing the sales volume of all Products. Such records shall support all services performed, allowances claimed and costs incurred by Seller in the performance of each Order, including but not limited to those factors which comprise or affect direct labor hours, direct labor rates, material costs, burden rates and subcontracts. Such records and other data shall be capable of verification through audit and analysis by Boeing and be available to Boeing at Seller's facility for Boeing's examination and audit at all reasonable times from the date of the applicable Order until three (3) years after final payment under such Order. Seller shall provide assistance to interpret such data if requested by Boeing. Such examination shall provide Boeing with complete information regarding Seller's performance for use in price negotiations with Seller relating to existing or future orders for Products, including but not limited to negotiation of equitable adjustments for changes and termination/obsolescence claims pursuant to GTA Section 10.0. Boeing shall treat all information disclosed under this Section as confidential. 10.0 CHANGES 10.1 GENERAL Boeing's Materiel Representative may at any time by written change order make changes within the general scope of an Order in any one or more of the following: drawings, designs, specifications, shipping, packing, place of inspection, place of delivery place of acceptance, adjustments in quantities, adjustments in delivery schedules, or the amount of Boeing furnished material. For purposes of this Section 10.1, written change includes electronic transmission chosen by Boeing. Seller shall proceed immediately to perform the Order as changed. If any such change causes an increase or decrease in the cost of or the time required for the performance of any part of the work, whether changed or not changed by the change order, an equitable adjustment shall be made in the price of or the delivery schedule for those Products affected, and the applicable Order shall be modified in writing accordingly. Any claim by Seller for adjustment under this Section 10.1 must be received by Boeing in writing no later than (60) days from the date of receipt by Seller of the written change order or within such further time as the parties may agree in writing or such claim shall be deemed waived. Nothing in this Section 10.1 shall excuse Seller from proceeding with an Order as changed, including failure of the parties to agree on any adjustment to be made under this Section 10.1. If Seller considers that the conduct of any of Boeing's employees has constituted a change hereunder, Seller shall immediately notify Boeing's Materiel Representative in writing as to the nature of such conduct and its effect on Seller's performance. Pending direction from Boeing's Materiel Representative, Seller shall take no action to implement any such change. 10.2 DERIVATIVE AIRCRAFT In the event any Derivative aircraft(s) is introduced by Boeing, Boeing may (but is not obligated to) direct Seller within the scope of the applicable Order and in accordance with the provisions of GTA Section 10.0 to supply Boeing's requirements for Products for such Derivative aircraft(s) which correspond to those Products being produced under the applicable Order. 11.0 PRODUCT SUPPORT AND ASSURANCE Boeing's acceptance of any Product does not alter or affect the obligations of Seller or the rights of Boeing and its customers under the document referenced in the SBP Section 6.0 or as provided by law. 9 12.0 TERMINATION FOR CONVENIENCE 12.1 BASIS FOR TERMINATION; NOTICE Boeing may, from time to time and at Boeing's sole discretion, terminate all or part of any Order issued hereunder, by written notice to Seller. Any such written notice of termination shall specify the effective date and the extent of any such termination. 12.2 TERMINATION INSTRUCTIONS On receipt of a written notice of termination pursuant to GTA Section 12.1, unless otherwise directed by Boeing, Seller shall: A. Immediately stop work as specified in the notice; B. Immediately terminate its subcontracts and purchase orders relating to work terminated; C. Settle any termination claims made by its subcontractors or suppliers; provided, that Boeing shall have approved the amount of such termination claims prior to such settlement; D. Preserve and protect all terminated inventory and Products; E. At Boeing's request, transfer title (to the extent not previously transferred) and deliver to Boeing or Boeing's designee all supplies and materials, work-in-process, Tooling and manufacturing drawings and data produced or acquired by Seller for the performance of this Agreement and any Order, for which Boeing has or will pay for as part of Seller's termination claim pursuant to Section 12.3 below, all in accordance with the terms of such request; F. Take all reasonable steps required to return, or at Boeing's option and with prior written approval to destroy, all Boeing Proprietary Information and Items in the possession, custody or control of Seller; G. Take such other action as, in Boeing's reasonable opinion, may be necessary, and as Boeing shall direct in writing, to facilitate termination of this Order; and H. Complete performance of the work not terminated. 12.3 SELLER'S CLAIM If Boeing terminates an Order in whole or in part pursuant to Section 12.1 above, Seller shall have the right to submit a written termination claim to Boeing in accordance with the terms of this Section 12.3. Such termination claim shall be submitted to Boeing not later than six (6) months after Seller's receipt of the termination notice and shall be in the form prescribed by Boeing. Such claim must contain sufficient detail to explain the amount claimed, including detailed inventory schedules and a detailed breakdown of all costs claimed separated into categories (e.g., materials, purchased parts, finished components, labor, burden, general and administrative), and to explain the basis for allocation of all other costs. Seller shall be entitled to be compensated in accordance with and to the extent allowed under the terms of FAR 52-249-2(e)-(m) excluding (i), (as published in 48 CFR Section 52.249-2) which is incorporated herein by this reference except "Government" and "Contracting Officer" shall mean Boeing, "Contractor" shall mean Seller and "Contract" shall mean Order. 10 12.4 FAILURE TO SUBMIT A CLAIM Notwithstanding any other provision of this Section 12.0, if Seller fails to submit a termination claim within the time period set forth above, Seller shall be barred from submitting a claim and Boeing shall have no obligation for payment to Seller under this Section 12.0 except for those Products previously delivered and accepted by Boeing. 12.5 PARTIAL TERMINATION Any partial termination of an Order shall not alter or affect the terms and conditions of the Order or any Order with respect to Products not terminated. 12.6 PRODUCT PRICE Termination under any of the above paragraphs shall not result in any change to unit prices for Products not terminated. 12.7 EXCLUSIONS OR DEDUCTIONS The following items shall be excluded or deducted from any claim submitted by Seller: A. All unliquidated advances or other payments made by Boeing to Seller pursuant to a terminated Order; B. Any claim which Boeing has against Seller; C. The agreed price for scrap allowance; D. Except for normal spoilage and any risk of loss assumed by Boeing, the agreed fair value of property that is lost, destroyed, stolen or damaged. 12.8 PARTIAL PAYMENT/PAYMENT Payment, if any, to be paid under this Section 12.0 shall be made thirty (30) days after settlement between the parties or as otherwise agreed to between the parties. Boeing may make partial payments and payments against costs incurred by Seller for the terminated portion of the Order, if the total of such payments does not exceed the amount to which Seller would be otherwise entitled. If the total payments exceed the final amount determined to be due, Seller shall repay the excess to Boeing upon demand. 12.9 SELLER'S ACCOUNTING PRACTICES Boeing and Seller agree that Seller's "normal accounting practices" used in developing the price of the Product(s) shall also be used in determining the allocable costs at termination. For purposes of this Section 12.9, Seller's "normal accounting practices" refers to Seller's method of charging costs as either a direct charge, overhead expense, general administrative expense, etc. 12.10 RECORDS Unless otherwise provided in this Agreement or by law, Seller shall maintain all records and documents relating to the terminated portion of the Order for three (3) years after final settlement of Seller's termination claim. 11 13.0 EVENTS OF DEFAULT AND REMEDIES 13.1 EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an "Event of Default": A. Any failure by Seller to deliver, when and as required by this Agreement or any Order, any Product, except as provided in GTA Section 14.0; or B. Any failure by Seller to provide an acceptable Assurance of Performance within the time specified in GTA Section 17.0, or otherwise in accordance with applicable law; or, C. Any failure by Seller to perform or comply with any obligation set forth in GTA Section 20.0; D. Seller is or has participated in the sale, purchase or manufacture of airplane parts without the required approval of the FAA; E. Where applicable, Boeing revokes Seller's Quality Assurance System approval; F. Any failure by Seller to perform or comply with any obligation (other than as described in the foregoing Sections 13.1.A, 13.1.B, 13.1.C, 13.1.D and 13.1.E) set forth in this Agreement and such failure shall continue unremedied for a period of thirty (30) days or more following receipt by Seller of notice from Boeing specifying such failure; or G. (a) the suspension, dissolution or winding-up of Seller's business, (b) Seller's insolvency, or its inability to pay debts, or its nonpayment of debts, as they become due, (c) the institution of reorganization, liquidation or other such proceedings by or against Seller or the appointment of a custodian, trustee, receiver or similar Person for Seller's properties or business, (d) an assignment by Seller for the benefit of its creditors, or (e) any action of Seller for the purpose of effecting or facilitating any of the foregoing. 13.2 REMEDIES If any Event of Default shall occur: A. CANCELLATION Boeing may, by giving written notice to Seller, immediately cancel this Agreement and/or any Order, in whole or in part, and Boeing shall not be required after such notice to accept the tender by Seller of any Products with respect to which Boeing has elected to cancel this Agreement. B. COVER Boeing may manufacture, produce or provide, or may engage any other persons to manufacture, produce or provide, any Products in substitution for the Products to be delivered or provided by Seller hereunder with respect to which this Agreement or any Order has been canceled and, in addition to any other remedies or damages available to Boeing hereunder or at law or in equity, Boeing may recover from Seller the difference between the price for each such Product and the aggregate expense, including, without limitation, administrative and other indirect costs, paid or incurred by Boeing to manufacture, produce or provide, or engage other persons to manufacture, produce or provide, each such Product. 12 C. REWORK OR REPAIR Where allowed by the applicable regulatory authority, Boeing or its designee may rework or repair any Product in accordance with GTA Section 8.3. D. SETOFF Boeing shall, at its option, have the right to set off against and apply to the payment or performance of any obligation, sum or amount owing at any time to Boeing hereunder or under any Order, all deposits, amounts or balances held by Boeing for the account of Seller and any amounts owed by Boeing to Seller, regardless of whether any such deposit, amount, balance or other amount or payment is then due and owing. E. TOOLING AND OTHER MATERIALS As compensation for the additional costs which Boeing will incur as a result of the actual physical transfer of production capabilities from Seller to Boeing or Boeing's designee, Seller shall upon the request of Boeing, transfer and deliver to Boeing or Boeing's designee title to any or all (i) Tooling, (ii) Boeing-furnished material, (iii) raw materials, parts, work-in-process, incomplete or completed assemblies, and all other Products or parts thereof in the possession or under the effective control of Seller or any of its subcontractors (iv) Proprietary Information and Materials of Boeing including without limitation planning data, drawings and other Proprietary Information and Materials relating to the design, production, maintenance, repair and use of Tooling, in the possession or under the effective control of Seller or any of its subcontractors, in each case free and clear of all liens, claims or other rights of any person. Seller shall be entitled to receive from Boeing reasonable compensation for any item accepted by Boeing which has been transferred to Boeing pursuant to this Section 13.2.E (except for any item the price of which shall have been paid to Seller prior to such transfer); provided, however, that such compensation shall not be paid directly to Seller, but shall be accounted for as a setoff against any damages payable by Seller to Boeing as a result of any Event of Default. F. REMEDIES GENERALLY No failure on the part of Boeing in exercising any right or remedy hereunder, or as provided by law or in equity, shall impair, prejudice or constitute a waiver of any such right or remedy, or shall be construed as a waiver of any Event of Default or as an acquiescence therein. No single or partial exercise of any such right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. No acceptance of partial payment or performance of any of Seller's obligations hereunder shall constitute a waiver of any Event of Default or a waiver or release of payment or performance in full by Seller of any such obligation. All rights and remedies of Boeing hereunder and at law and in equity shall be cumulative and not mutually exclusive and the exercise of one shall not be deemed a waiver of the right to exercise any other. Nothing contained in this Agreement shall be construed to limit any right or remedy of Boeing now or hereafter existing at law or in equity. 13 14.0 EXCUSABLE DELAY If delivery of any Product is delayed by unforeseeable circumstances beyond the control and without the fault or negligence of Seller or of its suppliers or subcontractors (any such delay being hereinafter referred to as "Excusable Delay"), the delivery of such Product shall be extended for a period to be determined by Boeing after an assessment by Boeing of alternate work methods. Excusable Delays may include, but are not limited to, acts of God, war, riots, acts of government, fires, floods, epidemics, quarantine restrictions, freight embargoes, strikes or unusually severe weather, but shall exclude Seller's noncompliance with any rule, regulation or order promulgated by any governmental agency for or with respect to environmental protection. However, the above notwithstanding, Boeing expects Seller to continue production, recover lost time and support all schedules as established under this Agreement or any Order. Therefore, it is understood and agreed that (i) delays of less than two (2) days' duration shall not be considered to be Excusable Delays unless such delays shall occur within thirty (30) days preceding the scheduled delivery date of any Product and (ii) if delay in delivery of any Product is caused by the default of any of Seller's subcontractors or suppliers, such delay shall not be considered an Excusable Delay unless the supplies or services to be provided by such subcontractor or supplier are not obtainable from other sources in sufficient time to permit Seller to meet the applicable delivery schedules. If delivery of any Product is delayed by any Excusable Delay for more than three (3) months, Boeing may, without any additional extension, cancel all or part of any Order with respect to the delayed Products, and exercise any of its remedies in accordance with GTA Section 13.2 provided however, that Boeing shall not be entitled to monetary damages or specific performance to the extent Seller's breach is the result of an Excusable Delay. 15.0 SUSPENSION OF WORK Boeing may at any time, by written order to Seller, require Seller to stop all or any part of the work called for by this Agreement for up to one hundred twenty (120) days hereafter referred to as a "Stop Work Order" issued pursuant to this Section 15.0. On receipt of a Stop Work Order, Seller shall promptly comply with its terms and take all reasonable steps to minimize the occurrence of costs arising from the work covered by the Stop Work Order during the period of work stoppage. Within the period covered by the Stop Work Order (including any extension thereof) Boeing shall either (i) cancel the Stop Work Order or (ii) terminate or cancel the work covered by the Stop Work Order in accordance with the provisions of GTA Section 12.0 or 13.0. In the event the Stop Work Order is canceled by Boeing or the period of the Stop Work Order (including any extension thereof) expires, Seller shall promptly resume work in accordance with the terms of this Agreement or any applicable Order. 16.0 TERMINATION OR CANCELLATION AND INDEMNITY AGAINST SUBCONTRACTOR CLAIMS Boeing shall not be liable for any loss or damage resulting from any termination pursuant to GTA Section 12.1, except as expressly provided in GTA Section 12.3 or any cancellation under GTA Section 13.0 except to the extent that such cancellation shall have been determined by Boeing and Seller to have been wrongful, in which case such wrongful cancellation shall be deemed a termination pursuant to GTA Section 12.1 and therefore shall be limited to the payment to Seller of the amount or amounts identified in GTA Section 12.3. As subcontractor claims are included in Seller's termination claim pursuant to GTA Section 12.3, Seller shall indemnify Boeing and hold Boeing harmless from and against (i) any and all claims, suits and proceedings against Boeing by any subcontractor or supplier of Seller in respect of any such termination and (ii) and any and all costs, expenses, losses and damages incurred by Boeing in connection with any such claim, suit or proceeding. 14 17.0 ASSURANCE OF PERFORMANCE A. SELLER TO PROVIDE ASSURANCE If Boeing determines, at any time or from time to time, that it is not sufficiently assured of Seller's full, timely and continuing performance hereunder, or if for any other reason Boeing has reasonable grounds for insecurity, Boeing may request, by notice to Seller, written assurance (hereafter an "Assurance of Performance") with respect to any specific matters affecting Seller's performance hereunder, that Seller is able to perform all of its respective obligations under this Agreement when and as specified herein. Each Assurance of Performance shall be delivered by Seller to Boeing as promptly as possible, but in any event no later than 15 calendar days following Boeing's request therefore and each Assurance of Performance shall be accompanied by any information, reports or other materials, prepared by Seller, as Boeing may reasonably request. Boeing may suspend all or any part of Boeing's performance hereunder until Boeing receives an Assurance of Performance from Seller satisfactory in form and substance to Boeing. B. MEETINGS AND INFORMATION Boeing may request one or more meetings with senior management or other employees of Seller for the purpose of discussing any request by Boeing for Assurance of Performance or any Assurance of Performance provided by Seller. Seller shall make such persons available to meet with representatives of Boeing as soon as may be practicable following a request for any such meeting by Boeing and Seller shall make available to Boeing any additional information, reports or other materials in connection therewith as Boeing may reasonably request. 18.0 RESPONSIBILITY FOR PROPERTY On delivery to Seller or manufacture or acquisition by it of any materials, parts, Tooling or other property, title to any of which is held by Boeing, Seller shall assume the risk of and shall be responsible for any loss thereof or damage thereto. In accordance with the provisions of an Order, but in any event on completion thereof, Seller shall return such property to Boeing in the condition in which it was received except for reasonable wear and tear and except to the extent that such property has been incorporated in Products delivered under such Order or has been consumed in the normal performance of work under such Order. 19.0 LIMITATION OF SELLER'S RIGHT TO ENCUMBER ASSETS Seller warrants to Boeing that it has good title to all inventory, work-in-process, tooling and materials to be supplied by Seller in the performance of its obligations under any Order ("Inventory"), and that pursuant to the provisions of such Order, it will transfer to Boeing title to such Inventory, whether transferred separately or as part of any Product delivered under the Order, free of any liens, charges, encumbrances or rights of others. 20.0 PROPRIETARY INFORMATION AND ITEMS Boeing and Seller shall each keep confidential and protect from disclosure all (a) confidential, proprietary, and/or trade secret information; (b) tangible items containing, conveying, or embodying such information; and (c) tooling obtained from and/or belonging to the other in connection with this Agreement or any Order (collectively referred to as "Proprietary Information and Materials"). Boeing and Seller shall each use Proprietary Information and Materials of the other only in the performance of and for the purpose of this Agreement and/or any Order. Provided, however, that despite any other obligations or restrictions imposed by this Section 20.0, Boeing shall have the right to use and disclose Seller's Proprietary Information and Materials for the purposes of testing, certification, use, sale, or support of any item delivered under this Agreement, an Order, or any airplane including such an item; and any such disclosure by Boeing shall, whenever appropriate, include a restrictive legend 15 20.0 (cont.) suitable to the particular circumstances. The restrictions on disclosure or use of Proprietary Information and Materials by Seller shall apply to all materials derived by Seller or others from Boeing's Proprietary Information and Materials. Upon Boeing's request at any time, and in any event upon the completion, termination or cancellation of this Agreement, Seller shall return all of Boeing's Proprietary Information and Materials, and all materials derived from Boeing's Proprietary Information and Materials to Boeing unless specifically directed otherwise in writing by Boeing. Seller shall not, without the prior written authorization of Boeing, sell or otherwise dispose of (as scrap or otherwise) any parts or other materials containing, conveying, embodying, or made in accordance with or by reference to any Proprietary Information and Materials of Boeing. Prior to disposing of such parts or materials as scrap, Seller shall render them unusable. Boeing shall have the right to audit Seller's compliance with this Section 20.0. Seller may disclose Proprietary Information and Materials of Boeing to its subcontractors as required for the performance of an Order, provided that each such subcontractor first assumes, by written agreement, the same obligations imposed upon Seller under this Section 20.0 relating to Proprietary Information and Materials; and Seller shall be liable to Boeing for any breach of such obligation by such subcontractor. The provisions of this Section 20.0 are effective in lieu of, and will apply notwithstanding the absence of, any restrictive legends or notices applied to Proprietary Information and Materials; and the provisions of this Section 20.0 shall survive the performance, completion, termination or cancellation of this Agreement or any Order. This Section 20.0 supersedes and replaces any and all other prior agreements or understandings between the parties to the extent that such agreements or understandings relate to Boeing's obligations relative to confidential, proprietary, and/or trade secret information, or tangible items containing, conveying, or embodying such information, obtained from Seller and related to any Product, regardless of whether disclosed to the receiving party before or after the effective date of this Agreement. 21.0 COMPLIANCE WITH LAWS 21.1 SELLER'S OBLIGATION Seller shall be responsible for complying with all laws, including, but not limited to, any statute, rule, regulation, judgment, decree, order, or permit applicable to its performance under this Agreement. Seller further agrees (1) to notify Boeing of any obligation under this Agreement which is prohibited under applicable environmental law, at the earliest opportunity but in all events sufficiently in advance of Seller's performance of such obligation so as to enable the identification of alternative methods of performance, and (2) to notify Boeing at the earliest possible opportunity of any aspect of its performance which becomes subject to additional environmental regulation of which Seller reasonably believes will become subject to additional regulation during the performance of this Agreement. 16 21.0 (cont.) 21.2 GOVERNMENT REQUIREMENTS If any of the work to be performed under this Agreement is performed in the United States, Seller shall, via invoice or other form satisfactory to Boeing, certify that the Products covered by the Order were produced in compliance with Sections 6, 7, and 12 of the Fair Labor Standards Act (29 U. S. C. 201-291), as amended, and the regulations and orders of the U. S. Department of Labor issued thereunder. In addition, the following Federal Acquisition Regulations are incorporated herein by this reference except "Contractor" shall mean "Seller": FAR 52.222-26 "Equal Opportunity" FAR 52.222-35 "Affirmative Action for Special Disabled and Vietnam Era Veterans" FAR 52.222-36 "Affirmative Action for Handicapped Workers".
22.0 INTEGRITY IN PROCUREMENT Boeing's policy is to maintain high standards of integrity in procurement. Boeing's employees must ensure that no favorable treatment compromises their impartiality in the procurement process. Accordingly, Boeing's employees must strictly refrain from soliciting or accepting any payment, gift, favor or thing of value which could improperly influence their judgment with respect to either issuing a Order or administering this Agreement. Consistent with this policy, Seller agrees not to provide or offer to provide any employees of Boeing any payment, gift, favor or thing of value for the purposes of improperly obtaining or rewarding favorable treatment in connection with any Order or this Agreement. Seller shall conduct its own procurement practices and shall ensure that its suppliers conduct their procurement practices consistent with these standards. If Seller has reasonable grounds to believe that this policy may have been violated, Seller shall immediately report such possible violation to the appropriate Director of Materiel or Ethics Advisor of Boeing. 23.0 INFRINGEMENT Seller shall indemnify, defend, and save Boeing and Customers harmless from all claims, suits, actions, awards (including but not limited to awards based on intentional infringement of patents known to Seller at the time of such infringement, exceeding actual damages, and/or including attorneys' fees and/or costs), liabilities, damages, costs and attorneys' fees, (but excluding consequential damages) related to the actual or alleged infringement of any United States or foreign intellectual property right (including but not limited to any right in a patent, copyright, industrial design or semiconductor mask work, or based on misappropriation or wrongful use of information or documents) and arising out of the manufacture, sale or use of Products by Boeing or Customers. Boeing and/or Customers shall duly notify Seller of any such claim, suit or action; and Seller shall, at its own expense, fully defend such claim, suit or action on behalf of Boeing and/or Customers. Seller shall have no obligation under this Section 23.0 with regard to any infringement arising from: (i) Seller's compliance with formal specifications issued by Boeing where infringement could not be avoided in complying with such specifications or (ii) use or sale of PRODUCTS in combination with other items when such infringement would not have occurred from the use or sale of those Products solely for the purpose for which they were designed or sold by Seller. For purposes of this Section 23.0 only, the term Customer shall not include the United States Government; and the term Boeing shall include The Boeing Company (Boeing) and all Boeing subsidiaries and all officers, agents, and employees of Boeing or any Boeing subsidiary. 17 24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS, AND TOOLING Seller hereby grants to Boeing an irrevocable, nonexclusive, paid-up worldwide license to practice and/or use, and license others to practice and/or use on Boeing's behalf, all of Seller's patents, copyrights, trade secrets (including, without limitation, designs, processes, drawings, technical data and tooling), industrial designs, semiconductor mask works, and tooling (collectively hereinafter referred to as "Licensed Property") related to the development, production, maintenance or repair of Products. Boeing hereafter retains all of the aforementioned license rights in Licensed Property, but Boeing hereby covenants not to exercise such rights except in connection with the making, having made, using and selling of Products or products of the same kind and then only if such undelivered quantity of Product cannot, in Boeing's sole determination, be obtained from commercially available sources (including Boeing) without the use of Seller's Licensed Property and if one or more of the following situations occur: a. Seller discontinues or suspends business operations or the production of any or all of the Products; b. Seller is acquired by or transfers all of its rights to manufacture the Products to any unrelated third party. c. Boeing cancels this Agreement or any Order for cause pursuant to GTA Section 13.0 herein; d. in Boeing's judgment it becomes necessary, in order for Seller to comply with the terms of this Agreement or any Order, for Boeing to provide support to Seller (in the form of design, manufacturing, or on-site personnel assistance) substantially in excess of that which Boeing normally provides to its suppliers; e. Seller's trustee in bankruptcy (or Seller as debtor in possession) fails to assume this Agreement and all Orders by formal entry of an order in the bankruptcy court within sixty (60) days after entry of an order for relief in a bankruptcy case of the Seller, or Boeing elects to retain its rights to Licensed Property under the bankruptcy laws; f. Seller is at any time insolvent (whether measured under a balance sheet test or by the failure to pay debts as they come due) or the subject of any insolvency or debt assignment proceeding under state or nonbankruptcy law; or g. Seller voluntarily becomes a debtor in any case under bankruptcy law or, in the event an involuntary bankruptcy petition is filed against Seller, such petition is not dismissed within (30) days. As a part of the license granted under this Section 24.0, Seller shall, at the written request of Boeing and at no additional cost to Boeing, promptly deliver to Boeing any and all Licensed Property considered by Boeing to be necessary to satisfy Boeing's requirements for Products and their substitutes. 25.0 NOTICES 25.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, mail, telex, teletype, telegram, facsimile, cable or other electronic transmission addressed to the respective party as set forth in the SBP Section 9.0. 18 25.2 EFFECTIVE DATE The date on which any such communication is received by the addressee is the effective date of such communication. 25.3 APPROVAL OR CONSENT With respect to all matters subject to the approval or consent of either party, such approval or consent shall be requested in writing and is not effective until given in writing. With respect to Boeing, authority to grant approval or consent is limited to Boeing's Materiel Representative. 26.0 PUBLICITY Seller will not, and will require that its subcontractors and suppliers of any tier will not, (i) cause or permit to be released any publicity, advertisement, news release, public announcement, or denial or confirmation of the same, in whatever form, regarding any Order or Products, or the program to which they may pertain, or (ii) use, or cause or permit to be used, the Boeing name or any Boeing trademark in any form of promotion or publicity without Boeing's prior written approval. 27.0 PROPERTY INSURANCE 27.1 INSURANCE When Boeing has an insurable interest, Seller shall obtain and maintain continuously in effect a property insurance policy covering loss or destruction of or damage to all property in which Boeing does or could have an insurable interest pursuant to this Agreement, including but not limited to Tooling, Boeing-furnished property, raw materials, parts, work-in process, incomplete or completed assemblies and all other products or parts thereof, and all drawings, specifications, data and other materials relating to any of the foregoing in each case to the extent in the possession or under the effective care, custody or control of Seller, in the amount of full replacement value thereof providing protection against all perils normally covered in an "all risk" property insurance policy (including without limitation fire, windstorm, explosion, riot, civil commotion, aircraft, earthquake, flood or other acts of God). Any such policy shall be with insurers reasonably acceptable to Boeing and shall (i) provide for payment of loss thereunder to Boeing, as loss payee, as its interests may appear and (ii) contain a waiver of any rights of subrogation against Boeing, its subsidiaries, and their respective directors, officers, employees and agents. 27.2 CERTIFICATE OF INSURANCE Upon written request from Boeing, Seller shall provide to Boeing's Materiel Representative certificates of insurance reflecting full compliance with the requirements set forth in GTA Section 27.1. Such certificates shall be kept current and in compliance throughout the period of this Agreement and shall provide for thirty (30) days advanced written notice to Boeing's Materiel Representative in the event of cancellation, non-renewal or material change adversely affecting the interests of Boeing. 27.3 NOTICE OF DAMAGE OR LOSS Seller shall give prompt written notice to Boeing's Materiel Representative of the occurrence of any damage or loss to any property required to be insured herein. If any such property shall be damaged or destroyed, in whole or in part, by an insured peril or otherwise, and if no Event of Default shall have occurred and be continuing, then Seller may, upon written notice to Boeing, settle, adjust, or compromise any and all such loss or damage not in excess of Two Hundred Fifty Thousand Dollars ($250,000) in any one occurrence and Five Hundred Thousand Dollars ($500,000) in the aggregate. Seller may settle, adjust or compromise any other claim by Seller only after Boeing has given written approval, which approval shall not be unreasonably withheld. 19 28.0 RESPONSIBILITY FOR PERFORMANCE Seller shall be responsible for the requirements of this Agreement and any Order referencing this Agreement. Seller shall bear all risks of providing adequate facilities and equipment to perform each Order in accordance with the terms thereof. Seller shall include as part of its subcontracts those elements of the Agreement which protect Boeing's rights including but not limited to right of entry provisions, proprietary information and rights provisions and quality control provisions. In addition, Seller shall provide to its subcontractors sufficient information to clearly document that the work being performed by Seller's subcontractor is to facilitate performance under this Agreement or any Order. Sufficient information may include but is not limited to Order number, GTA number and the name of Boeing's Materiel Representative. No subcontracting by Seller shall relieve Seller of its obligation under the applicable Order. 28.1 SUBCONTRACTING Where required by the requirements of the Order, no raw material and/or material process may be incorporated in a Product unless: (a) Seller uses an approved source or (b) Boeing has surveyed and qualified Seller's receiving inspection personnel and laboratories to test the specified raw materials an/or material process. No waiver of survey and qualification requirements will be effective unless granted by Boeing's Engineering and Quality Control Departments. Utilization of a Boeing-approved raw material source does not constitute a waiver of Seller's responsibility to meet all specification requirements. Seller shall maintain complete and accurate records regarding all subcontracted items and/or processes. Seller's use of subcontractors shall comply with Seller's quality assurance system approval for said subcontractors. 28.2 RELIANCE Boeing's entering into this Agreement is in part based upon Boeing's reliance on Seller's ability, expertise and awareness of the intended use of the Products. Seller agrees that Boeing and Boeing's customers may rely on Seller as an expert, and Seller will not deny any responsibility or obligation hereunder to Boeing or Boeing's customers on the grounds that Boeing or Boeing's customers provided recommendations or assistance in any phase of the work involved in producing or supporting the Products, including but not limited to Boeing's acceptance of specifications, test data or the Products. 28.3 ASSIGNMENT Each Order shall inure to the benefit of and be binding on each of the parties hereto and their respective successors and assigns, provided however, that no assignment of any rights or delegation of any duties under such Order is binding on Boeing unless Boeing's written consent has first been obtained. Notwithstanding the above, Seller may assign claims for monies due or to become due under any Order provided that Boeing may recoup or setoff any amounts covered by any such assignment against any indebtedness of Seller to Boeing, whether arising before or after the date of the assignment or the date of this Agreement, and whether arising out of any such Order or any other agreement between the parties. Boeing may settle all claims arising out of any Order, including termination claims, directly with Seller. 29.0 NON-WAIVER Boeing's failure at any time to enforce any provision of an Order does not constitute a waiver of such provision or prejudice Boeing's right to enforce such provision at any subsequent time. 20 30.0 HEADINGS Section headings used in this Agreement are for convenient reference only and do not affect the interpretation of the Agreement. 31.0 PARTIAL INVALIDITY If any provision of any Order is or becomes void or unenforceable by force or operation of law, the other provisions shall remain valid and enforceable. 32.0 APPLICABLE LAW; JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance with, the law as set forth in SBP Section 5.0. 33.0 AMENDMENT Oral statements and understandings are not valid or binding. Except as otherwise provided in GTA Section 10.0 and SBP Section 12.0, no Order may be changed or modified except by a writing signed by Seller and Boeing's Materiel Representative. 34.0 LIMITATION Seller may not (except to provide an inventory of Products to support delivery acceleration and to satisfy reasonable replacement and Spares requirements) manufacture or fabricate Products or procure any goods in advance of the reasonable flow time required to comply with the delivery schedule in the applicable Order. Notwithstanding any other provision of an Order, Seller is not entitled to any equitable adjustment or other modification of such Order for any manufacture, fabrication, or procurement of Products not in conformity with the requirements of the Order, unless Boeing's written consent has first been obtained. Nothing in this Section 34.0 shall be construed as relieving Seller of any of its obligations under the Order. 35.0 TAXES 35.1 INCLUSION OF TAXES IN PRICE All taxes, including but not limited to federal, state and local income taxes, value added taxes, gross receipt taxes, property taxes, and custom duties taxes are deemed to be included in the Order price, except applicable sales or use taxes on sales to Boeing ("Sales Taxes") for which Boeing has not supplied a valid exemption certificate or unless otherwise indicated on the applicable Order. 35.2 LITIGATION In the event that any taxing authority has claimed or does claim payment for Sales Taxes, Seller shall promptly notify Boeing, and Seller shall take such action as Boeing may direct to pay or protest such taxes or to defend against such claim. The actual and direct expenses, without the addition of profit and overhead, of such defense and the amount of such taxes as ultimately determined as due and payable shall be paid directly by Boeing or reimbursed to Seller. If Seller or Boeing is successful in defending such claim, the amount of such taxes recovered by Seller, which had previously been paid by Seller and reimbursed by Boeing or paid directly by Boeing, shall be immediately refunded to Boeing. 35.3 REBATES If any taxes paid by Boeing are subject to rebate or reimbursement, Seller shall take the necessary actions to secure such rebates or reimbursement and shall promptly refund to Boeing any amount recovered. 21 36.0 FOREIGN PROCUREMENT OFFSET With respect to work covered by the Order, Seller shall use its best efforts to cooperate with Boeing in the fulfillment of any foreign offset program obligation that Boeing may have accepted as a condition of the sale of Boeing's products. In the event that Seller solicits bids or proposals for, or procures or offers to procure any goods or services relating to the work covered by an Order from any source outside of the United States, Boeing shall be entitled, to the exclusion of all others, to all industrial benefits and other "offset" credits which may result from such solicitations, procurements or offers to procure. Seller agrees to take any actions that may be required on its part to assure that Boeing receives such credits. 37.0 ENTIRE AGREEMENT/ORDER OF PRECEDENCE 37.1 ENTIRE AGREEMENT The Order sets forth the entire agreement, and supersedes any and all other prior agreements understandings and communications between Boeing and Seller related to the subject matter of an Order. The rights and remedies afforded to Boeing or Customers pursuant to any provisions of an Order are in addition to any other rights and remedies afforded by any other provisions of this Order, by law or otherwise. 37.2 INCORPORATED BY REFERENCE In addition to the documents previously incorporated herein by reference, the documents listed below are by this reference made a part of this Agreement: A. Engineering Drawing by Part Number and, if applicable, related Outside Production Specification Plan (OPSP). B. Any other exhibits or documents agreed to by the parties to be a part of this Agreement. 37.3 ORDER OF PRECEDENCE In the event of a conflict or inconsistency between any of the terms of the following documents, the following order of precedence shall control: A. SBP (excluding the Administrative Agreement identified in E below) B. This General Terms Agreement (excluding the documents identified in D and F below) C. Order (excluding the documents identified in A and B above) D. Engineering Drawing by Part Number and, if applicable, related Outside Production Specification Plan (OPSP). E. Administrative Agreement (If Applicable) F. Any other exhibits or documents the parties agree shall be part of the Agreement. 22 37.4 DISCLAIMER Unless otherwise specified on the face of the applicable Order, any CATIA Dataset or translation thereof (each or collectively "Data") furnished by Boeing is furnished as an accommodation to Seller. It is the Seller's responsibility to compare such Data to the comparable two dimensional computer aided design drawing to confirm the accuracy of the Data. BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL WARRANTIES AND LIABILITIES OF BOEING AND ALL CLAIMS AND REMEDIES OF SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY ARISING FROM COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED UPON TORT, WHETHER OR NOT ARISING FROM BOEING'S NEGLIGENCE, AND (D) ANY RECOVERY BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. EXECUTED in duplicate as of the date and year first written above by the duly authorized representatives of the parties. THE BOEING COMPANY TRI-STAR ELECTRONICS by and through its division Boeing Commercial Airplane Group Name: /s/ John Pregent Name: /s/ [illegible] ----------------------------- -------------------------- Title: Contracts Administrator Title: President ---------------------------- ------------------------- Date: 7-14-98 Date: 7-15-98 ---------------------------- ------------------------- 23 EX-10.17-1 54 EXHIBIT 10.17.1 SPECIAL BUSINESS PROVISIONS between THE BOEING COMPANY and TRI-STAR ELECTRONICS INTERNATIONAL, INC. Number STD-6-5632-0097 i SPECIAL BUSINESS PROVISIONS TABLE OF CONTENTS
Section Item - ------- ---- 1.0 DEFINITIONS 2.0 PURCHASE ORDER NOTE 3.0 PRICES 3.1 Product Pricing 3.2 Manufacturing Configuration Baseline 3.3 Packaging 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT 5.0 APPLICABLE LAW/JURISDICTION 6.0 PRODUCT ASSURANCE 7.0 PAYMENT 7.1 Recurring Cost 7.2 Non-Recurring Cost 8.0 ACCEL/DECEL AT NO COST 9.0 NOTICES 9.1 Addresses 10.0 OBLIGATION TO PURCHASE AND SELL 11.0 COST Changes to the Statement of Work 12.2 Computation AND FINANCIAL PERFORMANCE VISIBILITY 12.0 CHANGES 12.1 of Equitable Adjustment 12.3 Obsolescense 12.4 Change Absorption 12.5 Planning Schedule 12.6 Value Engineering 12.7 Reduction in Quantity to be Delivered 13.0 SPARES AND OTHER PRICING 13.1 Spares 13.2 Short Flow Production Requirements 13.3 Tooling ii Section Item 13.4 Pricing of Boeing's Supporting Requirements 13.5 Pricing of Requirements for Modification or Retrofit 13.6 Similar to Pricing 14.0 STATUS REPORTS/REVIEWS 15.0 FOREIGN PROCUREMENT REPORT 16.0 BOEING FURNISHED MATERIEL 17.0 ASSIGNMENT 18.0 Not Applicable 19.0 Not Applicable 19.1 Not Applicable 19.2 Not Applicable 19.3 Not Applicable 19.4 Not Applicable 20.0 Not Applicable 21.0 Not Applicable 22.0 Not Applicable 23.0 Not Applicable 24.0 Not Applicable 25.0 Not Applicable 26.0 Not Applicable Attachment 1 Work Statement and Pricing Attachment 2 Foreign Procurement Report Attachment 3 Rates and Factors Attachment 4 Boeing AOG Coverage Attachment 5 Boeing AOG/Critical Shipping Notification Attachment 6 Not Applicable Attachment 7 Not Applicable Attachment 8 Precious Metals Abnormal Escalation Charges
iii AMENDMENTS
AMEND NUMBER DESCRIPTION DATE APPROVAL
iv SPECIAL BUSINESS PROVISIONS THESE SPECIAL BUSINESS PROVISIONS are entered into as of July 1, 1998 by and between Tri-Star Electronics, a Delaware corporation with its principal office in El Segundo, California ("Seller"), and The Boeing Company, a Delaware corporation with an office in Seattle, Washington, acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS A. Boeing and Seller entered into a General Terms Agreement GTA BCA-6-5632-0032 dated July 1, 1998 (the "Agreement") which is incorporated herein and made a part hereof by this reference, for the sale by Seller and purchase by Boeing of Products. B. Boeing and Seller desire to include these special business provisions ("SBP") relating to the sale by Seller and purchase by Boeing of Products. Now, therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: SPECIAL BUSINESS PROVISIONS 1.0 DEFINITIONS The definitions used herein shall be the same as used in the Agreement. 2.0 PURCHASE ORDER NOTE The following note shall be contained in any Order to which this SBP is applicable: This Order is subject to and incorporates by this reference SBP STD-6-5632-0097 between The Boeing Company and Tri-Star Electronics dated July 1, 1998. Each Order bearing such note shall be governed by and be deemed to include the provisions of this SBP. 3.0 PRICES 3.1 PRODUCT PRICING The prices and applicable period of performance of Products scheduled for delivery under this SBP are set forth in Attachment 1. Prices are in United States dollars, F.O.B. (El Segundo, California). 1 3.2 MANUFACTURING CONFIGURATION BASELINE Unit pricing for each Product or part number shown in Attachment 1 is based on the latest revisions of the engineering drawings or specifications at the time of the signing of this SBP. 3.3 PACKAGING The prices shown in Attachment 1 include packaging costs and all materials and labor required to package Products identified in Attachment 1. Packaging shall be furnished by the Seller in accordance with Document M6-1025, Volume II, "Supplier Part Protection Guide" or Document D200-10038-2 "Supplier Packaging Requirements" as applicable. In the case of Products to be shipped directly to Customers, A.T.A. Specification 300 "Specification for Packaging of Airline Supplies" shall apply unless otherwise directed by Boeing. 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT Pick the appropriate governing document for applicable procurement package All work performed under this SBP shall be in accordance with the following applicable documents which are incorporated herein and made a part hereof by this reference: Document D1-9000 Rev A., "Advanced Quality System", Basic Quality System as amended from time to time. 5.0 APPLICABLE LAW JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance only with the law of the State of Washington as applicable to contracts entered into and to be performed wholly within such STATE between citizens of such STATE, without reference to any rules governing conflicts of law. Seller hereby irrevocably consents to and submits itself exclusively to the jurisdiction of the applicable courts of the STATE and the federal courts therein for the purpose of any suit, action or other judicial proceeding arising out of or connected with any Order or the performance or subject matter thereof. Seller hereby waives and agrees not to assert by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that (a) Seller is not personally subject to the jurisdiction of the above-named courts, (b) the suit, action or proceeding is brought in an inconvenient forum or (c) the venue of the suit, action or proceeding is improper. 6.0 PRODUCT ASSURANCE 6.1 GOVERNING DOCUMENT Seller acknowledges that Boeing and Customers must be able to rely on each Product performing as specified and that Seller will provide all required support. Accordingly, the following provisions and document(s) are incorporated herein and made a part hereof: Seller warrants to Boeing and Customers that Products shall: (a) conform in all respects to all the requirements of the Order; (b) be free from all defects in materials and workmanship; and (c) to the extent not manufactured pursuant to detailed designs furnished by Boeing, be free from all defects in design and be fit for the intended purposes. 2 7.0 PAYMENT 7.1 RECURRING PRICE Unless otherwise provided in the applicable Order, payment of the recurring price shall be made in accordance with Form X-27981 "Pay From Receipt - Additional Terms and Conditions Regarding Invoicing and Payment". Payment terms shall be net thirty (30) days except as otherwise agreed to by the parties. All payments are subject to adjustment for shortages, credits and rejections. 7.2 NON-RECURRING PRICE/SPECIAL CHARGES Unless otherwise provided in the applicable Order, any non-recurring price payable by Boeing under Attachment 1 shall be paid within the term discount period or thirty (30) calendar days (whichever is later) after receipt by Boeing of both acceptable Products and a correct invoice. 8.0 ACCELERATION/DECELERATION AT NO COST Notwithstanding GTA Section 10.0, Boeing may make changes in the delivery schedule without additional cost or change to the unit price stated in the applicable Order if (a) the delivery date of the Product under such Order is on or before the last date of contract, if applicable, and (b) Boeing provides Seller with written notice of such changes. 9.0 NOTICES 9.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, United States mail, express delivery, telegram, facsimile, or electronic transmission addressed to the respective party as follows: To Boeing: Attention: Buyer: John Pregent M/S 38-FW BOEING COMMERCIAL AIRPLANE GROUP MATERIEL DIVISION P.O. Box 3707 Seattle, Washington 98124-2207 To Seller: Attention: Ken Thomas Tri-Star Electronics Int'l Inc. 2201 Rosecrans Avenue El Segundo, CA 90245 3 10.0 OBLIGATION TO PURCHASE AND SELL Boeing and Seller agree that in consideration of the prices set forth under Attachment 1, Boeing shall issue Orders for Products from time to time to Seller for Boeing's requirements. Such Products shall be shipped at any scheduled rate of delivery, as determined by Boeing, and Seller shall sell to Boeing Boeing's requirements of such Products, provided that, without limitation on Boeing's right to determine its requirements, Boeing shall not be obligated to issue any Orders for any given Product if: A. Any of Boeing's customers specify an alternate product; B. Such Product is, in Boeing's reasonable judgment, not technologically competitive at any time, for reasons including but not limited to the availability of significant changes in technology, design, materials, specifications, or manufacturing processes which result in a reduced price or weight or improved appearance, functionality, maintainability or reliability; C. Boeing gives reasonable notice to Seller of a change in any of Boeing's aircraft which will result in Boeing no longer requiring such Product for such aircraft; D. Seller has materially defaulted in any of its obligations under any Order, whether or not Boeing has issued a notice of default to Seller pursuant to GTA Section 13.0; or, E. Boeing reasonably determines that Seller cannot support Boeing's requirements for Products in the amounts and within the delivery schedules Boeing requires. 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY 11.1 COST AND PERFORMANCE VISIBILITY AND REVIEWS When requested by Boeing, Seller shall provide all necessary cost support data, source documents for direct and indirect costs, and assistance at the Seller's facility in support of cost and performance reviews performed by the parties pursuant to any Order or cost improvement program. 11.2 FINANCIAL PERFORMANCE VISIBILITY Seller shall provide financial data, on a quarterly basis, or as requested, to Boeing's Credit Office for credit and financial condition reviews. Said data shall include but not be limited to balance sheets, schedule of accounts payable and receivable, major lines of credit, creditors, income statements (profit and loss), cash flow statements, firm backlog, and head counts. Copies of such data are to be made available within 72 hours of any written request by Boeing. This data is required in addition to the cost data provided pursuant to GTA Section 9.0. All such information shall be treated as confidential in accordance with GTA Section 20.0. 12.0 CHANGES 12.1 CHANGES TO THE STATEMENT OF WORK Boeing may direct Seller within the scope of the applicable Order and in accordance with the provisions of GTA Section 10.0, to increase or decrease the work to be performed by the Seller in the manufacture of any Product. 12.2 COMPUTATION OF EQUITABLE ADJUSTMENT Not Applicable 4 12.3 OBSOLESCENCE Claims for obsolete or surplus material and work-in-process created by change orders issued pursuant to this Section shall be subject to the procedures set forth in GTA Section 12.0, except that Seller may not submit a claim for obsolete or surplus material resulting from an individual change order that has a total claim value of twenty-five hundred Dollars ($2,500.00) or less. Payment for obsolete or surplus materials shall be made by check deposited as first class mail to the address designated by Seller in SBP Section 9.1. Payment will be made on the tenth (10th) day of the month following the month of the obsolescence claim settlement. 12.4 CHANGE ABSORPTION Not Applicable 12.5 PLANNING SCHEDULE Any planning schedule or quantity estimate provided by Boeing shall be used solely for production planning. Boeing may purchase Products in different quantities and specify different delivery dates as necessary to meet Boeing's requirements. Such planning schedule and quantity estimate shall be subject to adjustment from time to time. Any such adjustment is not a change under GTA Section 10.0. 12.6 VALUE ENGINEERING, WEIGHT REDUCTION, LEAN MANUFACTURING AND RAW MATERIAL COST IMPROVEMENT 12.6.1 VALUE ENGINEERING Seller may from time to time submit proposals to Boeing to change drawings, designs, specifications or other requirements that: a. decrease Seller's performance costs; or b. produce a net reduction in the cost to Boeing of installation, operation, maintenance or production of the Product. Provided, that such change shall not impair any essential functions or characteristics of the Products or Tooling. 12.6.1.1 SUBMISSION OF PROPOSAL Proposals shall be submitted to Boeing's Materiel Representative. Boeing shall not be liable for any delay in acting upon a proposal. Boeing's decision to accept or reject any proposal shall be final. If there is a delay and the net result in savings no longer justifies the investment, Seller will not be obligated to proceed with the change. Seller has the right to withdraw, in whole or in part, any proposal not accepted by Boeing within the time period specified in the proposal. Seller shall submit, as a minimum, the following information with the proposal: a. description of the difference between the existing requirement and the proposed change, and the comparative advantages and disadvantages of each; b. the specific requirements which must be changed if the proposal is adopted; c. the cost savings and Seller's implementation costs; d. Each proposal shall include the need dates for engineering release and the time by which a proposal must be approved so as to obtain the maximum cost reduction. 5 12.6.1.2 ACCEPTANCE AND COST SHARING Boeing may accept, in whole or in part, any proposal by issuing a change order. Until such change has been issued, Seller shall remain obligated to perform in accordance with the terms and requirements of the original Order as written. Boeing and Seller shall share the savings as follows: (50%) savings to Boeing; (50%) savings to Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Each party shall be responsible for its own implementation costs, including but not limited to non-recurring costs. 12.6.1.3 COST SAVINGS COMPUTATION A change order shall be issued by Boeing and the unit price shall be reduced in an amount equal to the savings portion attributable to Boeing as set forth above. The applicable unit price as set forth in Attachment 1 Statement of Work shall be amended to reflect such change.
EXAMPLE: -------- Current Price: $600.00 Proposed Cost Savings: $100.00/unit Boeing's Percentage: 50.0% Seller's Percentage: 50.0%
STEP BY STEP COMPUTATION: 1. $100.00 unit savings x 50.0% Boeing's percentage of savings = $50.00 Boeing savings. 2. $100.00 unit savings x 50.0% Seller's percentage of savings = $50.00 Seller savings. 3. Net affect to the unit cost = $50.00 New Unit Price For Units - $550.00 12.6.2 WEIGHT REDUCTION PROPOSALS Seller is encouraged to submit proposals to Boeing that reduce the Product's weight without impairing any essential functions or characteristics of the Product. Seller shall submit such proposals in accordance with SBP Section 12.6.1 above. The amount of any costs or savings that result from a weight reduction proposal shall be agreed by Boeing and Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Boeing may accept in whole or in part, any such proposal by issuing a change order to the applicable Order. 12.6.3 LEAN MANUFACTURING/PROCESS IMPROVEMENT Boeing and Seller agree to work together to identify areas of improvement which affect the manufacturing and assembly process at Seller's facility and/or Seller's subcontractor's 6 facilities. Manufacturing and assembly processes include but are not limited to inventory turn rates, leadtime reductions, contracting strategies, setup reductions and lot size reductions. Boeing and Seller agree to use the following metrics to evaluate improvement: i) Inventory Turns, defined as Annual Costs of Goods Sold/Inventory Value; ii) Productivity, defined as Annual Sales/Average Employee Count; and, iii) Asset Turnover, defined as Annual Sales/Total Assets. Additional metrics may be added and evaluated as agreed to by the parties. Where Boeing and Seller can identify areas of improvement, beyond those previously anticipated, identified and documented in the contract price, the parties will determine the amount of savings which will result from the improvements and share the savings as set forth in 12.6.1.2 above. Where a savings is identified and documented, the parties agree to reduce the Product unit price by that amount apportioned to Boeing as identified above. 12.6.4 RAW MATERIAL COST IMPROVEMENT In the event Boeing implements a program to address raw material issues affecting the subcontractor base, Seller agrees to support Boeing by identifying areas of improvement involving raw materials. When requested by Boeing, Seller shall identify usage, leadtime, contractual impediments or any other factor which may affect Boeing's ability to implement raw material program improvements. Boeing's program to improve leadtime and price for raw material is intended to support all divisions, subsidiaries and affiliates of The Boeing Company. Where savings are identified and documented, the parties agree to reduce the Product's unit price by the corresponding reduction in raw material price plus the applicable reduction in the corresponding mark-ups. These reductions shall be incorporated on the first delivery of applicable Product(s) which incorporate the revised pricing for raw material or as otherwise agreed to by the parties in writing. The implementation of these programs by Boeing and Seller's participation in these programs shall not impair, prejudice or relieve Seller of its obligations under any applicable Order. 12.7 REDUCTION IN QUANTITY TO BE DELIVERED Not Applicable 13.0 SPARES AND OTHER PRICING 13.1 SPARES For purposes of this Section, the following definitions shall apply: A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated AOG by Boeing. Such effort includes but is not limited to working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such AOG Spare within two (2) hours of receipt of an AOG Spare request. B. CRITICAL - means an imminent AOG work stoppage. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated Critical by Boeing. Such effort includes but is not limited to working two (2) shifts a day, five (5) days a week and use of premium transportation. Seller shall specify the delivery date and time of any such Critical Spare within the same working day of receipt of a Critical Spare request. 7 C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's normal leadtime. Seller will expend best efforts to meet the requested delivery date. Such effort includes but is not limited to working overtime and use of premium transportation. D. ROUTINE (CLASS III) - means a Spare required in Seller's normal leadtime. E. POA REQUIREMENT (POA) - means any detail component needed to replace a component on an End Item Assembly currently in Boeing's assembly line process. Seller shall expend best efforts feasible to provide the earliest possible delivery of any Spare designated as POA by Boeing. Such effort includes but is not limited to working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such POA within two (2) hours of an AOG Spare request. F. IN-PRODUCTION - means any Spare with a designation of AOG, Critical, Expedite, Routine, POA or End Item Assembly which is in the current engineering configuration for the Product and is used on a model aircraft currently being manufactured by Boeing. G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation of AOG, Critical, Expedite and Routine requirements which is used on model aircraft no longer being manufactured by Boeing (Post Production) or is in a non-current engineering configuration for the Product (Out of Production). H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured (i) by Boeing, or (ii) to Boeing's detailed designs with Boeing's authorization or (iii) in whole or in p art using Boeing's Proprietary Materials. 13.1.1 SPARES SUPPORT Seller shall provide Boeing with a written Spares support process describing Seller's plan for supporting AOG and Critical commitments and manufacturing support. The process must provide Boeing with the name and number of a twenty-four (24) hour contact for coordination of AOG and Critical requirements. Such contact shall be equivalent to the coverage provided by Boeing to its Customers as outlined in Attachment 4 "Boeing AOG Coverage" which is incorporated herein and made a part hereof by this reference. Seller shall notify Boeing as soon as possible via fax, telecon, or as otherwise agreed to by the parties of each AOG and Critical requirement shipment using the form identified in Attachment 5 "Boeing AOG and Critical Shipping Notification". Such notification shall include time and date shipped, quantity shipped, Order, pack slip, method of transportation and air bill if applicable. Seller shall also notify Boeing immediately upon the discovery of any delays in shipment of any requirement and identify the earliest revised shipment possible. 13.1.2 RECLASSIFICATION OR RE-EXERCISES Boeing may on occasion, instruct Seller to re-prioritize or reclassify an existing requirement in order to improve or otherwise change the established shipping schedule. Seller shall expend the effort required to meet the revised requirement as set forth above in the definitions of the requirements. Seller's commitment of a delivery schedule shall be given in accordance with that set forth above for the applicable classification but in no case shall it exceed twenty-four (24) hours from notification by Boeing. 8 SPECIAL BUSINESS PROVISIONS 13.1.3 SPARE PRICING Except as set forth in subsections 13.1.3.1 and 13.1.3.2 below, the price for {{Boeing Proprietary}} Spare(s) shall be the same as the production price for the Products as listed on Attachment 1, in effect at the time the Spare(s) are ordered. Detail parts shall be priced so that the sum of the prices for all detail parts of an End Item Assembly equals the applicable recurring portion of the End Item Assembly. 13.1.4 SPECIAL HANDLING The price for all effort associated with the handling and delivery of Spare(s) is deemed to be included in the price for such Spare(s). Provided, that if Boeing directs delivery of Spares to an F.O.B. point other than Seller's plant, Boeing shall reimburse Seller for shipping charges, including insurance, paid by Seller from the plant to the designated F.O.B. point. Such charges shall be shown separately on all invoices. 13.2 SHORT FLOW PRODUCTION REQUIREMENTS Boeing shall pay no expedite charges for production requirements released less than Seller's current Re-Order Leadtime (ROLT). Seller agrees to support Boeing's short flow requirements with its best effort. 13.3 TOOLING 13.3.1 RESPONSIBLE PARTY Seller shall absorb all costs for Tooling manufactured and/or purchased by Seller necessary for the manufacture and delivery of the Products including but not limited to rework, repair and maintenance of the Tooling. 13.3.2 BOEING FURNISHED TOOLING In the event Boeing furnishes Tooling to Seller, Seller shall comply with the Terms and Conditions applicable to the Blanket Tooling Purchase Control Order. No repair, replacement or rework of such Tooling shall be performed without Boeing's prior written consent. Boeing shall notify Seller of any action required for discrepant Tooling. 13.4 PRICING OF BOEING'S SUPPORTING REQUIREMENTS Any Products required to assist Boeing's supporting requirements, including but not limited to requirements for color and appearance samples, Boeing-owned simulators, test requirements, factory support, flight test spares will be provided for not more than the applicable price as set forth in Attachment 1. 13.5 PRICING OF REQUIREMENTS FOR MODIFICATION OR RETROFIT Any Products required by Boeing to support a modification or retrofit program shall be provided for not more than the applicable price as set forth in Attachment 1. 13.6 SIMILAR PRICING New Products ordered by Boeing that are similar to or within Product families of Products currently being manufactured by Seller shall be priced using the same methodology or basis as that used to price the existing Product(s). 14.0 STATUS REPORTS/REVIEWS When requested by Boeing, Seller shall update and submit, as a minimum, monthly status reports on data requested by Boeing using a method mutually agreed upon by Boeing and Seller. 9 When requested by Boeing, Seller shall provide to Boeing a manufacturing milestone chart identifying the major purchasing, planning and manufacturing operations for the applicable Product(s). Upon request by Boeing, program review(s) may be held between the parties. The location of such review shall be mutually agreed to by the parties. The purpose of the review is to improve communication and understanding between the parties to ensure program success. 15.0 MARKET ACCESS/INTERNATIONAL COOPERATION/BUSINESS STRATEGIES FOREIGN PROCUREMENT REPORT Seller agrees to work with Boeing to develop a contracting strategy which supports Boeing's Market Access and International Business Strategy. Boeing and Seller agree to work together to identify suppliers and countries where Seller may subcontract in support of Boeing's Market Access and International Business Strategy. Prior to releasing any request for proposal to a subcontract or to support Boeing's offset or business strategy, Seller shall coordinate with Boeing. Seller shall document on Attachment 2 all offers to contract and executed contracts with such subcontractors including the dollars contracted. Seller shall provide to Boeing with an updated copy of Attachment 2 for the six-month periods ending June 30 and December 31 of each year. The reports shall be submitted on the 1st of August and the 1st of February respectively. 16.0 BOEING FURNISHED MATERIAL Not Applicable 17.0 ASSIGNMENT AND THIRD PARTY PRICING 17.1 ASSIGNMENT Boeing and Seller agree that Boeing may, in its discretion, assign, in part or in whole, its purchasing obligations under the Agreement or any Order, as applicable, at the prices set forth in Attachment 1 thereof. Boeing reserves the right to rescind its assignment at anytime. Boeing's assignment of purchasing obligation includes scheduling, issuance of Order(s), receival and inspection of Products, acceptance or rejection of Products, payment for accepted Products, and ensuring conformance to the quality assurance system requirements. Boeing shall retain all other rights and obligations pursuant to the applicable terms and conditions. In addition, Boeing reserves the right, where necessary, to coordinate with and mediate between Seller and any assignee regarding such assignment. In the event Boeing assigns its purchasing obligations pursuant to 17.0, Boeing shall remain liable if the assignee fails to make payments under the terms of this Agreement. 17.2 THIRD PARTY PRICING SELLER agrees to sell products defined in Attachment 1, "PRICING and LEADTIME", to a third party or parties which may be designated by the BUYER within the duration of this contract at the same pricing afforded to Boeing when said requirements are in support of Boeing purchase orders, i.e., for work the third party is performing under Boeing purchase orders. The terms and conditions governing the sale between Seller and the third party shall be agreed to between the Seller and the third party. 10 18.0 INVENTORY AT CONTRACT COMPLETION Not Applicable 19.0 OWNERSHIP OF INTELLECTUAL PROPERTY Not Applicable 19.1 TECHNICAL WORK PRODUCT Not Applicable 19.2 INVENTIONS AND PATENTS Not Applicable 19.3 WORKS OF AUTHORSHIP AND COPYRIGHTS Not Applicable 19.4 PRE-EXISTING INVENTIONS AND WORKS OF AUTHORSHIP Not Applicable 20.0 ADMINISTRATIVE AGREEMENTS Not Applicable 21.0 GUARANTEED WEIGHT REQUIREMENTS Not Applicable 22.0 SUPPLIER DATA REQUIREMENTS Not Applicable 23.0 DEFERRED PAYMENT Not Applicable 24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS Not Applicable 25.0 CONFIGURATION CONTROL OF SCD PRODUCTS Not Applicable 26.0 INFRINGEMENT Not Applicable EXECUTED in duplicate as of the date and year first set forth above by the duly authorized representatives of the parties. THE BOEING COMPANY TRI-STAR INT'L INC. By and Through its Division 2201 Rosecrans Ave. Boeing Commercial Airplane Group El Segundo, California 90245 Name: /s/ John Pregent Name: /s/ [illegible] ---------------------------- ---------------------------- Title: Contracts Administrator Title: President --------------------------- --------------------------- Date: 7-14-98 Date: 7-15-98 ---------------------------- ---------------------------- 11 ATTACHMENT 1 TO SPECIAL BUSINESS PROVISIONS WORK STATEMENT AND PRICING The price for products to be delivered through June 30, 2003 shall be as follows:
Part Number/Family Lead Time Description Price - ----------------------- --------- ----------- ------- 001-9007-001 8 Weeks Contact $0.8200 118-2020-074 8 Weeks Contact $0.1638 31A2016-035 10 Weeks Contact $0.7200 316-1616-634 14 Weeks Contact $0.3800 316-1620-634 14 Weeks Contact $0.3840 316-2020-192 8 Weeks Contact $0.2250 316-2222-634 8 Weeks Contact $0.0895 318-1616-253 (590290-7) 12 Weeks Contact $0.5950 318-2016-035 12 Weeks Contact $0.5007 318-2020-252 14 Weeks Contact $0.4320 5000-070-0116 Contact buy sub part M39029-9-516 5000-070-0216 Contact buy sub part M39029-9-517 5100-108-0216 Contact buy sub part M39029-10-522 5000-179-16-1 Contact buy sub part 318-1616-253 BACC47CN1A 8 Weeks Contact $0.1950 BACC47CN1S 8 Weeks Contact $0.0960 BACC47CN3 8 Weeks Contact $0.2765 BACC47CP1S 8 Weeks Contact $0.1152 BACC47CP2T 8 Weeks Contact $0.2592 BACC47CP3T 8 Weeks Contact $0.3802 BACC47DE1A 12 Weeks Contact $0.1571 BACC47DE3A 14 Weeks Contact $0.5850 BACC47DE4A 8 Weeks Contact $0.1536 BACC47DE5A 10 Weeks Contact $0.1537 BACC47DE6A 10 Weeks Contact $0.1399 BACC47DE7A 8 Weeks Contact $0.1382 BACC47DE8A 8 Weeks Contact $0.1476 BACC47DJ1 8 Weeks Contact $0.2280 BACC47DJ2 10 Weeks Contact $0.3024 BACC47DP1 10 Weeks Contact $0.3024 BACC47DP2 14 Weeks Contact $0.5760 BACC47DP3 12 Weeks Contact $2.1600 BACC47DP4 14 Weeks Contact $2.4000 BACC47DP5 14 Weeks Contact $2.5900 BACC47DR1 10 Weeks Contact $0.3888 BACC47DR2 14 Weeks Contact $1.8000
1 ATTACHMENT 1 TO SPECIAL BUSINESS PROVISIONS WORK STATEMENT AND PRICING The price for products to be delivered through June 30, 2003 shall be as follows:
Part Number/Family Lead Time Description Price - ----------------------- --------- ----------- ------- BACC47DR3 12 Weeks Contact $2.1600 BACC47DR4 14 Weeks Contact $3.3600 BACC47DR5 14 Weeks Contact $3.8400 BACC47EF1 8 Weeks Contact $0.0778 BACC47EF2 8 Weeks Contact $0.1210 BACC47EF4 14 Weeks Contact $0.7200 BACC47EG1 8 Weeks Contact $0.2112 BACC47EG2 8 Weeks Contact $0.1900 BACC47EG4 12 Weeks Contact $1.1250 BACC47ER1 8 Weeks Contact $0.2851 M39029-1-100 8 Weeks Contact $0.1296 M39029-1-101 8 Weeks Contact $0.0864 M39029-1-102 8 Weeks Contact $0.1296 M39029-1-103 14 Weeks Contact $0.2610 M39029-10-139 12 Weeks Contact $8.0000 M39029-10-141 12 Weeks Contact $5.0000 M39029-10-520 12 Weeks Contact $8.0000 M39029-10-521 12 Weeks Contact $5.4000 M39029-10-522 12 Weeks Contact $6.0000 M39029-11-145 8 Weeks Contact $0.0821 M39029-22-191 8 Weeks Contact $0.1620 M39029-22-192 8 Weeks Contact $0.1710 M39029-29-212 8 Weeks Contact $0.3800 M39029-29-214 12 Weeks Contact $3.0400 M39029-30-217 14 Weeks Contact $0.2400 M39029-30-219 14 Weeks Contact $0.4000 M39029-30-220 14 Weeks Contact $1.2900 M39029-32-248 10 Weeks Contact $0.2400 M39029-4-110 8 Weeks Contact $0.0672 M39029-4-111 14 Weeks Contact $0.0768 M39029-4-113 12 Weeks Contact $0.1920 M39029-5-115 8 Weeks Contact $0.0900 M39029-5-116 14 Weeks Contact $0.1056 M39029-5-118 12 Weeks Contact $0.2400 M39029-56-348 8 Weeks Contact $0.0864 M39029-56-351 8 Weeks Contact $0.1248
2 ATTACHMENT 1 TO SPECIAL BUSINESS PROVISIONS WORK STATEMENT AND PRICING The price for products to be delivered through June 30, 2003 shall be as follows:
Part Number/Family Lead Time Description Price - ----------------------- --------- ----------- ------- M39029-56-352 12 Weeks Contact $0.4100 M39029-57-354 8 Weeks Contact $0.0864 M39029-57-355 14 Weeks Contact $0.3615 M39029-57-356 14 Weeks Contact $0.2400 M39029-57-357 8 Weeks Contact $0.1152 M39029-57-358 8 Weeks Contact $0.2430 M39029-58-360 8 Weeks Contact $0.0540 M39029-58-362 14 Weeks Contact $0.0960 M39029-58-363 8 Weeks Contact $0.0672 M39029-58-364 8 Weeks Contact $0.1260 M39029-63-368 8 Weeks Contact $0.0864 M39029-64-369 8 Weeks Contact $0.0691 M39029-85-455 12 Weeks Contact $5.8500 M39029-85-456 12 Weeks Contact $4.8000 M39029-9-515 12 Weeks Contact $8.0000 M39029-9-516 12 Weeks Contact $5.7500 M39029-9-517 12 Weeks Contact $7.0500 M39029-92-531 Contact buy sub part 316-2222-634 M39029-92-535 14 Weeks Contact $0.8200 S280W552-107 10 Weeks Contact $1.5000 S280W552-109 10 Weeks Contact $0.9000 S280W552-205 14 Weeks Contact $7.5700 S280W555-916 8 Weeks Contact $0.1890 S280W555-918 12 Weeks Contact $0.6030 S280W555-920 8 Weeks Contact $0.0963
3 ATTACHMENT 2 TO SPECIAL BUSINESS PROVISIONS FOREIGN PROCUREMENT REPORT FORM (Seller to Submit) (Reference Section 15.0)
COMMODITY/ BID CONTRACTED SUPPLIER NAME COUNTRY NOMENCLATURE DOLLARS DOLLARS - ------------- ------- ------------ ------- ----------
21 ATTACHMENT 3 TO SPECIAL BUSINESS PROVISIONS RATES AND FACTORS The following Rates and Factors shall be used on all price change negotiations during the period of performance of these SBP VARIABLE DATA REQUIRED DEPENDING UPON ORGANIZATION Direct Labor Rate $ Manufacturing Burden % G&A (Gen. Admin. Expense) % Profit % --- Total Rate
22 ATTACHMENT 4 TO SPECIAL BUSINESS PROVISIONS BOEING AOG COVERAGE - - NORMAL HOURS BOEING'S MATERIEL REPRESENTATIVE (MATERIEL DIVISION) Approximately 5:30 a.m. - 6:00 p.m. - Performs all functions of procurement process. - Manages formal communication with Seller. - - SECOND SHIFT - AOG PROCUREMENT SUPPORT (MATERIEL DIVISION) 3:00 p.m. - 11:00 p.m. - May place order and assist with commitment and shipping information, working with several suppliers on a priority basis. - Provides a communication link between Seller and Boeing. - - 24 HOUR AOG SERVICE - AOG CUSTOMER REPRESENTATIVE (CUSTOMER SERVICE DIVISION) 544-9000 - Support commitment information particularly with urgent orders. - Customer Service Representative needs (if available): - Part Number - Boeing Purchase Order - Airline Customer & customer purchase order number - Boeing S.I.S. # If Seller is unable to contact any of the above, please provide AOG/Critical shipping information notification via FAX using Boeing AOG/Critical shipping notification form (Attachment 5). 23 ATTACHMENT 5 TO SPECIAL BUSINESS PROVISIONS BOEING AOG/CRITICAL SHIPPING NOTIFICATION - -------------------------------------------------------------------------------- To: FAX: (206) 544-9261 or 544-9262 Phone: (206) 544-9296 ---------------------------- ---------------------------- Buyer Name: Phone: ---------------------------- ---------------------------- From: Today's Date: ---------------------------- --------------------- - -------------------------------------------------------------------------------- Part Number: Customer PO: ---------------------------- ---------------------- Customer: Ship Date: ---------------------------- ------------------------ Qty Shipped: *SIS Number: ---------------------------- ---------------------- Boeing PO: Pack Sheet ---------------------------- or Invoice: ----------------------- *Airway Bill: --------------------------- *Flight #: ------------------------ Carrier: ---------------------------- Freight Forwarder: ---------------------------- * If Applicable Shipped To: (Check One) Boeing -------- Direct Ship to Customer -------- Direct Ship to Supplier -------- Remarks: ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- ------------------------------------------------------------------- IF UNABLE TO CONTACT BUYER, PLEASE USE THIS FORM TO FAX SHIPPING INFORMATION. 24 ATTACHMENT 6 TO SPECIAL BUSINESS PROVISIONS SUPPLIER DATA REQUIREMENTS LIST ("SDRL") CUSTOMER SUPPORT (Reference Section 22.0) 25 ATTACHMENT 7 TO SPECIAL BUSINESS PROVISIONS SUPPLIER DATA REQUIREMENTS LIST ("SDRL") ENGINEERING (Reference Section 22.0) 26 ATTACHMENT 8 TO SPECIAL BUSINESS PROVISIONS PRECIOUS METALS ABNORMAL ESCALATION CHARGES Abnormal escalation adjustment clauses for precious metals used in the manufacture of Seller's products shall be in effect for this contract. The purpose of such clauses is to protect Supplier and Buyer from extreme price fluctuations in the precious metals used to plate electrical contacts. As such, the following clauses shall be in effect during the period of this contract for determining price adjustments, which shall occur quarterly, for such extreme fluctuations. RHODIUM The following concept will be used for calculating abnormal escalation adjustments for the rhodium plated electrical contacts. The amount of rhodium in each contact is as follows:
Part Number Rhodium Content (grams) --------------------------------------------- BACC47CN3 .00314000 BACC47CN3B .00314000 BACC47CP2T .00246688 BACC47CP2TB .00246688 BACC47CP3T .00373080
The base price of rhodium shall be $20.81 per gram with a ceiling price of $35/gram and a floor price of $6.62. Adjustments will be made when the price of rhodium extends beyond the ceiling or floor and will be adjusted from the base price. The following formula shall be used for price adjustments: (Monthly weighted average rhodium price - base rhodium price) x rhodium content (grams) x quantity of electrical contacts delivered in the referenced quarter. A resulting positive number indicates that Boeing owes Tri-Star, while a resulting negative number indicates that Tri-Star owes Boeing. As soon as practical after each quarter delivery date (March 31, June 30, September 30, December 31), Supplier will send to Buyer an assertion for the rhodium adjustment for that quarter. Documentation provided to Buyer shall include: - Part number - Quantity of parts - Price adjustments for that part number - All invoices for rhodium purchased in the delivery month - Rhodium cost used in the adjustment formula As soon as the data can be verified, Buyer will issue a non-receivable purchase order for the cost adjustment. 1 ATTACHMENT 8 TO SPECIAL BUSINESS PROVISIONS EXAMPLES: RHODIUM PRICE INCREASE: Current month weighted average price: $35.00/gr. Base price: $21.81/gr. Part deliveries. BACC47CN3 = 18,000 Rhodium content: .003140 gr. Adjustment: ($35.00 - $21.81) x .003140 x 18,000 = $745.50 Boeing owes Tri-Star RHODIUM PRICE NO CHARGE Current month weighted average price: $33.50/gr. Base price: $21.81/gr. Or Current month weighted average price: $7.25/gr. Base price: $21.81/gr. Adjustment: Current prices in the above two scenarios are neither above $35.00/gr. nor below $6.62/gr. therefore, no price adjustment. RHODIUM PRICE DECREASE Current month weighted average price: $4.25/gr. Base price: $21.81/gr. Part deliveries: BACC47CN3 = 18,000 Rhodium content: .003140 gr. Adjustment: ($4.25 - $21.81) x .003140 x 18,000 = -$992.49 Tri-Star owes Boeing GOLD The following concept will be used for calculating abnormal escalation adjustments for the gold plated electrical contacts. The amount of gold in each contact is as follows:
Part Number Gold Content (grams) ----------------------------------- 001-9007-001 .00026890 118-2020-074 .00007080 31A-2016-035 .00015590 316-1616-634 .00015650 316-1620-634 .00014210 318-1616-253 .00014450 318-2016-035 .00018180 318-2020-252 .00016660 BACC47CN1A .00014350 BACC47CN1S .00007170 BACC47CN3 .00010510 BACC47CP1S .00008260 BACC47CP2T .00008260 BACC47CP3T .00012490 BACC47DE1A .00010700 BACC47DE3A .00006430 BACC47DE4A .00006040 BACC47DE5A .00006310
2 ATTACHMENT 8 TO SPECIAL BUSINESS PROVISIONS BACC47DE6A .00006310 BACC47DE7A .00006160 BACC47DE8A .00005590 BACC47DJI .00013470 BACC47DJ2 .00014600 BACC47DP1 .00021210 BACC47DP2 .00034770 BACC47DP3 .00073650 BACC47DP4 .00110960 BACC47DP5 .00213300 BACC47DR1 .00031380 BACC47DR2 .00048230 BACC47DR3 .00097510 BACC47DR4 .00140010 BACC47DR5 .00254910 BACC47EF1 .00005920 BACC47EF2 .00007560 BACC47EF4 .00002701 BACC47EG1 .00008140 BACC47EG2 .00014630 BACC47EG4 .00041900 BACC47ER1 .00007820 M39029-1-100 .00006400 M39029-1-101 .00007240 M39029-1-102 .00012320 M39029-1-103 .00020230 M39029-11-145 .00004370 M39029-22-191 .00004700 M39029-22-192 .00006500 M39029-29-212 .00008500 M39029-30-217 .00012440 M39029-32-248 .00010880 M39029-4-110 .00004560 M39029-4-111 .00007800 M39029-4-113 .00012140 M39029-5-115 .00004770 M39029-5-116 .00009970 M39029-5-118 .00015070 M39029-56-348 .00004770 M39029-56-351 .00006880 M39029-56-352 .00010660 M39029-57-354 .00003050 M39029-57-355 .00006410 M39029-57-356 .00003270 M39029-57-357 .00004660 M39029-57-358 .00007820 M39029-58-360 .00002300 M39029-58-362 .00002470 M39029-58-363 .00007140 M39029-58-364 .00005910 M39029-63-368 .00004720 M39029-64-369 .00003380 S280W552-205 .00195370 S280W555-916 .00013490 3 ATTACHMENT 8 TO SPECIAL BUSINESS PROVISIONS S280W555-918 .00008090 S280W555-920 .00007940
The base price of gold shall be $320 per troy ounce with a ceiling price of $425/troy oz. and a floor price of $215. Adjustments will be made when the price of gold extends beyond the ceiling or floor and will be adjusted from the base price. The following forumula shall be used for price adjustments: (Monthly weighted average gold price - base gold price) x gold content (troy oz.) x quantity of electrical contacts delivered in the referenced quarter. A resulting positive number indicates that Boeing owes Tri-Star, while a resulting negative number indicates that Tri-Star owes Boeing. As soon as practical after each quarter delivery date (March 31, June 30, September 30, December 31), Supplier will send to Buyer an assertion for the gold adjustment for that quarter. Documentation provided to Buyer shall include: - Part number - Quantity of parts - Price adjustments for that part number - All invoices for gold purchased in the delivery month - Gold cost used in the adjustment formula As soon as the data can be verified, Buyer will issue a non-receivable purchase order for the cost adjustment. EXAMPLES: GOLD PRICE INCREASE Current month weighted average price: $550.00/oz. Base price: $320/oz. Part deliveries: BACC47CNIS - 18,000 Gold content: .0000717 oz. Adjustment: ($550.00 - $320.00) x .0000717 x 18,000 = $296.84 Boeing owes Tri-Star. GOLD PRICE NO CHARGE Current month weighted average price: $395/oz. Base price: $320/oz.. Or Current month weighted average price: $225/oz. Base price: $320/oz. Adjustment: Current prices in the above two scenarios are neither above $425/oz. nor below $215/oz. therefore, no price adjustment. GOLD PRICE DECREASE Current month weighted average price: $175.00/oz. Base price: $320/oz. Part deliveries: BACC47CNIS = 18,000 Gold content: .0000717 oz. Adjustment: ($175.00 - $320.00) x .0000717 x 18,000 = $187.14 Tri-Star owes Boeing 4 EX-10.18 55 EXHIBIT 10.18 GENERAL TERMS AGREEMENT between THE BOEING COMPANY and PATS, INC. RELATING TO 737-700 BBJ AUXILIARY FUEL TANK SYSTEMS i TABLE OF CONTENTS
SECTION TITLE PAGE - -------- ----- ----- 1.0 Definitions 2 2.0 Issuance of Purchase Orders and Acceptance 3 2.1 Issuance of Purchase Orders 3 2.2 Acceptance of Purchase Orders 4 2.3 Written Authorization to Proceed 4 2.4 Rejection of Purchase Orders 4 3.0 Technical Data/Technical Assistance 4 3.1 Technical Data to be Furnished by Buyer 4 3.2 Materials Provided by Buyer 5 4.0 Limitation on Sales of Fuel Tank Systems 5 5.0 Location of Fuel Tank System Installation 5 6.0 Aircraft Schedule 5 6.1 Aircraft Arrival 5 6.2 Development Program-Initial Period of Performance 5 6.3 Installation Time 6 6.4 Inspection Inventory 6 7.0 Redelivery 6 7.1 Operational Ground Check 6 7.2 Aircraft Receipt Form 6 7.3 Delay 6 7.4 Liquidated Damages 7 ii SECTION TITLE PAGE - -------- ----- ----- 8.0 Quality Control, Inspection, Rejection and Acceptance 7 8.1 Right of Entry 7 8.2 Sellers Inspection 8 8.3 Inspection, Rejection and Acceptance 8 8.4 Sellers Disclosure 8 8.5 Product Assurance/Product Support Obligations 8 8.6 Federal Aviation Administration or Equivalent 8 8.7 Certification 8 9.0 On-Site Review and Resident Representatives 9 9.1 Review 9 9.2 Language for Technical Information 9 9.3 Resident Representative 9 10.0 Invoice and Payment and Governing Documents 9 10.1 Invoice and Payment 9 10.2 Governing Documents 10 10.2.1 Product Assurance Agreement 10 10.2.2 Product Support Requirements 10 11.0 Changes 10 11.1 General 10 11.2 Obsolescence 10 11.3 Notification of Approval of Changes 11 11.4 Examination of Records for Changes 11 12.0 Termination for Convenience 12 iii SECTION TITLE PAGE - -------- ----- ----- 12.1 12.2-12.10 Basis for Termination Notice 12-13 13.0 Events of Default and Remedies 14 14.0 Excusable Delay 17 15.0 Suspension of Work 18 16.0 Termination or Cancellation: Indemnity Against Subcontractor's Claims 18 17.0 Assurance of Performance 19 18.0 Responsibility for Property 19 20.0 Proprietary Information and Items 20 21.0 Seller's Obligation, Government Requirement 21 21.1 Seller's Obligation, Government Requirement 21.2 Seller's Obligation, Government Requirement 21 22.0 Integrity in Procurement 21 23.0 Infringement 24.0 Boeing's rights in Seller's, Patents, Copyrights, trade Secrets & Tooling 25.0 Notices 25.1 Addresses 25.2 Effective Date 25.3 Approval or Consent 26.0 Publicity iv SECTION TITLE PAGE - -------- ----- ----- 27.0 Title and Risk of Loss of Aircraft and Goods 28.0 General/Airport Premises Liability Insurance and Hangarskeeper Legal Liability Insurance 29.2 Certificate of Insurance 29.3 Notice of Damage or Loss 30.0 Responsibility for Performance 30.1 Subcontracting 30.2 Reliance 30.3 Assignment 31.0 Non-Waiver 32.0 Headings 33.0 Partial Invalidity 34.0 Applicable Law 35.0 Amendment 36.0 Limitation 37.1 Inclusion of Taxes in Price 37.2 Litigation 37.3 Rebates 38.0 Foreign Procurement Offset 39.0 Entire Agreement/Order of Precedence 39.1 Entire Agreement 39.2 Incorporated by Reference 39.3 Order of Precedence 39.4 Disclaimer
v GENERAL TERMS AGREEMENT RELATING TO BOEING PRODUCTS THIS GENERAL TERMS AGREEMENT ("Agreement") is entered into as of November 18, 1997 by PATS, Inc. ("Seller"), a corporation, with its principal office in Columbia, Maryland and The Boeing Company, a Delaware corporation with its principal office in Seattle, Washington acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS A. Boeing produces commercial airplanes. B. Seller desires to design, manufacture, install, test and certify auxiliary fuel tank systems for 737-700 BBJ Aircraft, and Seller wishes to utilize Buyer's proprietary technical requirements documents and other Buyer proprietary technical information and data for that purpose. C. Seller further desires to sell auxiliary fuel tank systems to Buyer and install such systems on 737-700 BBJ Aircraft as directed by Buyer. D. Buyer is willing to disclose its proprietary technical requirements documents and other of its proprietary information, data and documents to Seller and is prepared to monitor (and, at Buyer's discretion, assist with) Seller's design, installation, testing and certification of auxiliary fuel tank systems for 737-700 BBJ Aircraft; all on the condition that Seller will keep such proprietary documents, information and data confidential and not use such documents, information or data in any way in connection with the sale of such systems to any customer other than Buyer. E. Buyer and Seller wish to enter into an agreement establishing a framework for facilitating (2) the design, manufacture, testing and certification of auxiliary fuel tank systems by Seller, (2) the sale of such systems by Seller to Buyer, and (3) the installation of such systems, when purchased by Buyer, on aircraft owned by Buyer's customers; all in accordance with individual purchase orders which will subsequently be issued by Buyer and accepted by Seller. F. Buyer and Seller entered into Special Business Provisions and Product Support and Assurance Agreement relating to these same products. 1 AGREEMENTS 1.0 DEFINITIONS The definitions set forth below shall apply to the following terms as they are used in this Agreements, any Order, or any related Special Business Provisions ("SBP)"). Words importing the singular number shall also include the plural number and vice versa. (a) "Aircraft" are Boeing models 737-700 BBJ Airplanes in which Seller shall install a Fuel Tank System (as defined below) pursuant to a contract between Buyer and Seller. (b) Customer" means any owner, lessee and/or operator of a 737-700 BBJ Aircraft who has contracted with Buyer for the purchase and/or installation of a fuel tank system. (c) "Derivative" means any new model airplane designated by Boeing as a derivative of an existing Model airplane and which: (1) has the same number of engines as the existing model airplane; (2) utilizes essentially the same aerodynamic and propulsion design, major assembly components, and systems as the existing model airplane and (3) achieves other payload/range combinations by changes in body length, engine thrust, or variations in certified gross weight. (d) "Drawing" means an automated or manual depiction of graphics or technical information representing a Product or any part thereof and which includes the parts list and specifications related thereto. (e) "End Item Assembly" means any Product which is described by a single part number and which is comprised of more than one component part. (f) "FAA" means the United States Federal Aviation Administration or any successor agency thereto. (g) "FAR" means the Federal Acquisition Regulations in effect on the date of this Agreement. (h) "Fuel Tank System" means any 737-700 BBJ Auxiliary Fuel Tank System designed, manufactured, tested, or certified for, or installed aboard, an aircraft through reference to or use of any technical data and/or with technical assistance from Buyer personnel. (i) "Goods" means one or more fuel Tank Systems, including services related there to, covered by a single Order. 2 (j) "Materiel Representative" means the individual designated from time to time, by Boeing as being primarily responsible for interacting with Seller regarding this Agreement and any Order. (k) "Order" means each purchase order issued by Boeing and accepted by Seller under the terms of this Agreement. Each Order is a contract between Boeing and Seller. (1) "Product" means goods, including components and parts thereof, services, documents, data, software, software documentation and other information or items furnished or to be furnished to Boeing under any Order, including Tooling except for Rotating Use Tools. (m) "Purchased on Assembly Production Detail Part (POA)" means a component part of an End Item Assembly. (n) "Redelivery" is the delivery of the Aircraft from Seller to Buyer or Customer after the installation of the Fuel Tank System. (o) "Shipset" means the total quantity of a given part number of material necessary for production of one airplane. (p) "Services" means Seller's services in connection with the design, manufacture, installation, testing, or certification of Fuel Tank Systems for, or the installation of Fuel Tank Systems aboard, 737-700 BBJ Aircraft pursuant to an Order. (q) "Technical Data" means any technical requirements documents, other documents or materials, and Proprietary Information (as defined in Clause 3.0 of this Agreement) which are provided or disclosed to Seller under this Agreement and/or pursuant to an Order or Orders. 2.0 ISSUANCE OF ORDERS AND ACCEPTANCE 2.1 ISSUANCE OF PURCHASE ORDERS Boeing may issue Orders to Seller from time to time. Each Order shall contain a description of the Products ordered, a reference to the applicable specifications and Drawings, the quantities and prices, the delivery schedule, the terms and place of delivery and any special conditions. Each Order which incorporates this Agreement shall be governed by and be deemed to include the provisions of this Agreement. Purchase Order Terms and Conditions, Form D1-4100-4045, Form P252T and any other purchase order terms and conditions which may conflict with this Agreement, do not apply to the Orders. 2.2 ACCEPTANCE OF PURCHASE ORDERS 3 Each purchase order is Boeing's offer to Seller and acceptance is strictly limited to its terms. Boeing will not be bound by and specifically objects to any term or condition which is different from or in addition to the provisions of the Order, whether or not such term or condition will materially alter the Order. Seller's commencement of performance or acceptance of the Order in any manner shall conclusively evidence Seller's acceptance of the Order as written. Boeing may revoke any Order prior to Boeing's receipt of Seller's written acceptance or Seller's commencement of performance in accordance with Section 12-1 herein. 2.3 WRITTEN-AUTHORIZATION TO PROCEED Boeing's Materiel Representative may give written authorization to Seller to commence performance before Boeing issues an Order. If Boeing in its written authorization specifies that an Order will be issued, Boeing and Seller shall proceed as if an Order had been issued. This Agreement, the applicable SBP and the terms stated in the written authorization shall be deemed to be part of Boeing's offer and the parties shall promptly agree on any open Order terms. If Boeing does not specify in its written authorization, Boeing's obligation is strictly limited to the terms of the written authorization that an order shall be issued. For purposes of this Section 2.3 only, written authorization includes electronic transmission chosen by Boeing. If Seller commences performance before an Order is issued or without receiving Boeing's prior authorization to proceed, such performance shall be at Seller's expense. 2.4 REJECTION OF PURCHASE ORDER. Any rejection by Seller of an Order shall specify the reasons for rejection and any changes or additions that would make the Order acceptable to Seller; provided, however, that Seller may not reject any Order for reasons inconsistent with the provisions of this Agreement or the applicable SBP. 3.0 TECHNICAL DATA/TECHNICAL ASSISTANCE 3.1 TECHNICAL DATA TO BE FURNISHED BY BUYER Technical Data to be furnished by Buyer to Seller under this Agreement shall include, but is not necessarily limited to Exhibit "A": hereto. Other Technical Data, as well as technical assistance from Buyer personnel, shall be provided by Buyer to Seller as and to the extent that Buyer, in its sole and absolute discretion, deems appropriate. 3.2 MATERIALS PROVIDED BY BUYER It is acknowledged and agreed by Seller that all technical requirements 4 documents and/or other documents or materials provided by Buyer to Seller under this Agreement are presumed to be and will be treated as proprietary to Buyer. 4.0 LIMITATION ON SALES OF FUEL TANK SYSTEMS Seller desires to use Buyer's valuable Technical Data and/or receive valuable technical assistance from Buyer's personnel in connection with Seller's design, development, manufacture, testing, certification and/or installation of auxiliary fuel tank systems for 737-70OBBJ Aircraft. In consideration of Buyer's disclosure of Technical Data and/or providing of technical assistance to Seller under this Agreement and of other agreements contained herein Seller agrees to sell Fuel Tank Systems only to Buyer. 5.0 LOCATION OF FUEL TANK SYSTEM INSTALLATION The Order shall be performed at PATs support, Inc. Georgetown, Delaware and Seller shall not change the location of the performance of the Order or the Aircraft without the prior written consent of Buyer. 6.0 AIRCRAFT SCHEDULE 6.1 AIRCRAFT ARRIVAL In each Order, Buyer shall specify an estimated arrival date of the Aircraft. Seller acknowledges that such date is only Buyer's best estimate and Buyer shall not be responsible for or be deemed to be in default under the Order if an arrival date is changed. In the event an arrival date of the Aircraft is different from the one set forth in the Order, the parties shall negotiate a revised arrival and Redelivery date. Notwithstanding the provision for an equitable adjustment in Clause 11.0, "Changes," any change in arrival date shall not entitle Seller to an equitable adjustment in the Order price or in the installation time set forth below. 6.2 DEVELOPMENT PROGRAM - INITIAL PERIOD OF PERFORMANCE Seller agrees that the period of performance required for the Development Program (period from issuance of the first Order under the Agreement to certification of the first airplane of each model for several tank configurations) shall be as reflected in Exhibit "A". 6.3 INSTALLATION TIME Seller acknowledges that time is of the essence in performing the Order and the maximum time for installation of a Fuel Tank System for each Aircraft type and Redelivery to Customer is: 5 First Aircraft 67 Calendar Days Second Aircraft 30 Calendar Days Third Aircraft 21 Calendar Days Fourth Aircraft and all Subsequent Aircraft 14 Calendar Days
Provided that not more than one aircraft is delivered every two weeks (nose to tail). Schedules for Aircraft installations in excess of two (2) per month will be agreed to on a case-by-case basis, 6.4 INSPECTION/INVENTORY Upon arrival of the Aircraft at Seller's installation site, Seller and Customer shall inspect the Aircraft and its equipment to identify any obvious damage or condition either party deems notable and make an inventory of the installed equipment, cargo and other appropriate items aboard the Aircraft. Following completion of the inspection and inventory, Seller will provide to Buyer and Customer written acknowledgment of receipt of the Aircraft, its condition and a copy of the inventory report essentially in the form of Exhibit: "B" hereto. 7.0 REDELIVERY 7.1 OPERATIONAL GROUND CHECK Promptly after completion of the installation of the Fuel Tank System, Seller shall conduct an operational ground check on the Aircraft in accordance with Seller's "Technical Order" criteria as may be applicable for the purpose of demonstrating to Customer and Buyer that the Fuel Tank System is operational. 7.2 AIRCRAFT RECEIPT FORM Seller shall redeliver the recorded inventory and the Aircraft to Customer after installation of the Fuel Tank System. Seller shall provide Buyer an Aircraft Receipt Form essentially in the form of Exhibit "C" hereto executed by Seller and Customer and any other forms that may be required by Buyer, Customer or the FAA. 7.3 DELAY Redelivery of the Aircraft with the Fuel Tank System installed shall be strictly in accordance with the schedule and other requirements specified in the applicable Order. Seller shall immediately notify Buyer and 6 confirm in writing of any circumstance that may cause a delay in Redelivery, stating the estimated period of delay and the reasons therefor. If requested by Buyer, Seller shall use additional effort including premium effort to avoid or minimize delay to the maximum extent possible. All additional costs resulting from such premium effort shall be borne by the party responsible for the delay, Nothing herein may be construed to prejudice any of the rights or remedies provided to Buyer in the applicable Order or by law. 7.4 LIQUIDATED DAMAGES Seller acknowledges that late delivery of Products will subject Boeing to certain losses and damages, including possible stoppage or interruption of the production line, utilization of additional employee and other resources, damage to Boeing's reputation with its customers and additional costs resulting from re-sequencing the production line. The parties agree that such losses and damages will be substantial, but extremely difficult and impracticable to ascertain. Therefore, the parties agree that if Seller fails to deliver products in accordance with the schedule set forth in the Order, Seller will owe liquidated damages in the amount of ten thousand United States Dollars (U.S. $10,000.00) for each calendar day that seller is late in delivering products after the scheduled delivery date, up to a maximum of ten (10) calendar days. Such amounts shall be paid and received as liquidated damages and not as a penalty. The parties acknowledge and agree that this amount is presently a reasonable estimate of Boeing's anticipated losses and damages considering all of the circumstances existing on the date of the execution of this Agreement, including the relationship of the amount of such liquidated damages to the degree of harm to Boeing that reasonably could be anticipated. Further, the parties expect that proof of actual damages would be impractical or extremely difficult. Boeing shall be entitled, but not obligated, to offset the amount of such liquidated damages against any amount owed to Seller. In placing its initials in the space provided below, Seller expressly confirms the accuracy of the statement made above and fully understands the consequences of this provision at the time this Agreement was made. Initials: Seller ----------------- 8.0 QUALITY CONTROL INSPECTION, REJECTION AND ACCEPTANCE 7 8.1 RIGHT OF ENTRY Buyer, Customer's representatives and the FAA may inspect Seller's plant, facilities, systems, equipment, testing, data, personnel and the Goods including without limitation, work in process and equipment manufactured for installation in the Aircraft. Such inspection shall be performed on a non-interference basis. No inspection, test and no delay or failure to inspect, test or to discover any defect or other noncompliance shall relieve Seller of any of its obligations or impair any rights or remedies of Buyer or Customers. 8.2 SELLER'S INSPECTION Seller shall inspect or otherwise verify that all Products and components thereof, including those procured from or furnished by subcontractors or Boeing, comply with the requirements of the Order prior to shipment to Boeing or 'Customer. Seller shall be responsible for all tests and inspections of the Product and any component thereof during receiving, manufacture and Seller's final inspection. Seller shall include on each packing sheet a certification that the Products comply with the requirements of the Order. 8.3 INSPECTION, REJECTION AND ACCEPTANCE Upon Seller's written notification that its performance under the Order has been completed, Buyer may make a final inspection and accept the Goods. Buyer may reject any or all of the Goods or any tender thereof which is not strictly in conformance with the requirements of the Order and notify Seller of such rejection. At Seller's risk and expense, Seller shall immediately repair or replace such rejected Goods. All repair, replacement, and other corrections shall be completed within such time as Buyer may require. 8.4 SELLER'S DISCLOSURE Seller will immediately notify Boeing when discrepancies in Seller's processes or Products are discovered or suspected for Products Seller has delivered. 8.5 PRODUCT ASSURANCE/PRODUCT SUPPORT OBLIGATIONS Buyer's acceptance of any Goods does not alter or affect the obligations of Seller or the rights of Buyer and Customers under the Product Assurance and Product Support documents listed in the "Product Assurance and Product Support," or as provided by law. 8.6 FEDERAL AVIATION ADMINISTRATION OR EQUIVALENT Government Agency Inspection Representatives of Boeing, the FAA or any equivalent government agency may inspect and evaluate Seller's plant including, but not limited to, Seller's and subcontractor's facilities, systems, data, equipment, inventory, holding areas, procedures, personnel, testing, and all work-in-process and completed Products. For purposes of this Section 8.6 8 equivalent government agency shall mean those governmental agencies so designated by the FAA or those agencies within individual countries which maintain responsibility for assuring aircraft airworthiness. 8.7 CERTIFICATION A certification shall be provided that materials and/or finished parts have been controlled and tested in accordance with and will meet specified Order requirements and applicable specifications and that records are on file subject to Buyer's examination. Copies of manufacturing planning, test and inspection results or certifications shall be furnished to Buyer upon request. 9.0 ON SITE REVIEW AND RESIDENT REPRESENTATIVES 9.1 REVIEW At Buyer's request, Seller shall provide at Buyer's facility, or at a place designated by Buyer, a review explaining the status of any Order, actions taken or planned to be taken relating to such Order and any other relevant information. Nothing herein may be construed as a waiver of Buyer's rights to proceed against Seller because of any delinquency. Boeing's authorized representatives may enter Seller's plant at all reasonable times to conduct preliminary inspections and tests of the Products and work-in-process. Seller shall include in it subcontracts issued on connection with an Order a like provision giving Boeing the right to enter the premises of Seller's subcontractors. When requested by Boeing, Seller shall accompany Boeing to Seller's subcontractors. 9.2 LANGUAGE FOR TECHNICAL INFORMATION All reports, drawings and other technical information submitted to Boeing for review or approval shall be in English and shall employ the units of measure customarily used by Boeing in the U. S. A. 9.3 RESIDENT REPRESENTATIVES Buyer may in its discretion and for such periods as it deems necessary assign resident personnel at Seller's facilities in addition to the resident Quality Control personnel provided for in Clause 8.1, "Right of Entry". The resident team will function under the guidance of Buyer's manager who will provide program coordination within the scope of the work authorized by any Order. The resident team will provide communication and coordination to ensure timely performance of any Order. Buyer's resident team shall be allowed access to all work areas, Order status reports and management review necessary to assure timely coordination and conformance with the requirements of each Order. Seller, however, remains fully responsible for performing in accordance with each Order. 9 10.0 INVOICE AND PAYMENT GOVERNING DOCUMENTS 10.1 INVOICE AND PAYMENT Unless otherwise provided in the applicable Order, invoicing and payment shall be in accordance with SBP Attachment #7. 10.2 GOVERNING DOCUMENTS Seller acknowledges that Buyer and Customer must be able to rely on the Fuel Tank System performing as specified and that Seller will provide the required support services. Accordingly, the provisions of the following documents are incorporated herein and by this reference made a part hereof; 10.2.1 "Product Assurance Agreement Relating to the Fuel Tank System" dated (TBD), as revised from time to time. 10.2.2 "Produce Support Requirements Document," No. D6-41186, _____________,dated _________ as revised from time to time. 11.0 CHANGES 11.1 GENERAL Buyer's Materiel Representative may at any time by written change order make reasonable changes within the general scope of an Order in any one or more of the following: (1) Technical Data and other technical requirements and descriptions, specifications, drawings or designs related thereto: (b) place of delivery, inspection or acceptance of the Goods. Seller shall proceed immediately to perform the Order as changed. If any such change causes an increase or decrease in the cost of or the time required for the performance of any part of the Order, whether changed or not changed by the change order, an equitable adjustment shall be made in the price of or the delivery schedule for such Order, and such Order shall be modified in writing accordingly. Any claim by Seller for adjustment under this Clause must be received by Buyer in writing within thirty (30) days from the date of receipt by Seller of the written change order or within such further time as the parties may agree in writing or such claim shall be deemed waived. Nothing in this Clause shall excuse Seller from proceeding with an Order as changed, including failure of the parties to agree on any adjustment to be made under this Clause. If Seller considers that the conduct of any of Buyer's employees has constituted a change hereunder, Seller shall immediately notify Buyer in writing as to the nature of such change and its effect on Seller's performance. Pending direction from Buyer's Materiel Representative, Seller shall take no action to implement any such change. 10 11.2 OBSOLESCENCE Claims for obsolete or surplus material and work-in-process created by change orders issued pursuant to this Clause shall be subject to the procedures set forth in Clause 12.0, "Termination - Convenience." Payment for obsolete or surplus materials shall be made by check deposited as first class mail in the United States Postal Service to the address designated by Seller in SBP Clause 9.1, "Addresses." Payment will be made on the tenth (10th) day of the month following the month of the obsolescence claim settlement. 11.3 NOTIFICATION OF APPROVAL OF CHANGES With respect to the Fuel Tank System, Seller shall notify Buyer whenever Seller's design or development activities indicate the need for any configuration detail or function to differ from the configuration in Seller's approved design. With respect to the Fuel Tank System, Seller shall obtain Buyer's approval prior to incorporation of: A. Changes to acceptance test procedures or equipment; B. Changes which alter the form, fit or function of the Fuel Tank System; C. Changes which affect the repair or replacement interchangeability of the Fuel Tank System; D. "Changes to processes; E. Changes involving material or component substitutions or finish changes; F. Changes which alter the weight, center of gravity or moment of inertia of the Fuel Tank System; or G. Changes which affect the descriptions or operations outlined in Buyer's or Seller's overhaul manuals. 11.4 EXAMINATION OF RECORDS FOR CHANGES Seller shall maintain complete and accurate cost records related to all changes to Orders. Such records shall support all services performed, allowances claimed and costs incurred by Seller in the performance of each Change Order, including, but not limited to those factors which comprise or affect direct labor hours, material costs, burden rates and subcontracts. Such records and other data shall be capable of 11 verification through audit and analysis by Buyer and be available to Buyer at Seller's facility for Buyer's examination and aid at all reasonable times from the date of the applicable Change Order until one (1) year after final payment under such change order. Seller shall provide assistance to interpret such data if required by Buyer. The purpose of such examination shall be for Buyer to obtain complete information concerning Seller's performance for use by Buyer-directed changes and negotiation of termination; obsolescence claims. All such information so obtained shall be treated as confidential. 12.0 TERMINATION FOR CONVENIENCE 12.1 BASIS FOR TERMINATION: NOTICE Boeing may, from time to time and at Boeing's sole discretion, terminate all or part of any Order issued hereunder, by written notice to Seller. Any such written notice of termination shall specify the effective date and the extent of any such termination. Any such notice of termination for an individual order will not change Buyer's requirements to purchase 120 systems. 12.2 TERMINATION INSTRUCTIONS On receipt of a written notice of termination pursuant to GTA Section 12.1, unless otherwise directed by Boeing, Seller shall: A. Immediately stop work as specified in the notice. B. Immediately terminate its subcontracts and purchase orders relating to work terminated; C. Settle any termination claims made by its subcontractors or suppliers; provided, that Boeing shall have approved the amount of such termination claims prior to such settlement. D. Preserve and protect all terminated inventory and Products; E. At Boeing's request, transfer title (to the extent not previously transferred) and deliver to Boeing or Boeing's designees all supplies and materials, work-in-process, Tooling and manufacturing drawings 12 and data produced or acquired by Seller for the performance of this Agreement and any Order, all in accordance with the terms of such request. F. Take all reasonable steps required to return, or at Boeing's option and with prior written approval to destroy all Boeing Proprietary Information and Items in the possession, custody or control of Seller. G. Take such other action as, in Boeing's reasonable opinion, may be necessary and as Boeing shall direct in writing to facilitate termination of this Order; and H. Complete performance of the work not terminated. 12.3 SELLER'S CLAIM If Boeing terminates an Order in whole or in part pursuant to Section 12.1 above, Seller shall have the right to submit a written termination claim to Boeing in accordance with the terms of this Section 12.3. Such termination claim shall be submitted to Boeing not later than six (6) months after Seller's receipt of the termination notice and shall be in the form prescribed by Boeing. Such claim must contain sufficient detail to explain the amount claimed, including detailed inventory schedules and a detailed breakdown of all costs claimed separated into categories (e.g., materials, purchased parts, finished components, labor, burden, general and administrative), and to explain the basis for allocation of all other costs. Seller shall be entitled to be compensated in accordance with and to the extent allowed under the terms of FAR 52-249-2(e)-(m) excluding (i), (as published in 48 CFR 12.4 FAILURE TO SUBMIT A CLAIM Notwithstanding any other provision of this Section 12.0, if Seller fails to submit a termination claim within the time period set forth above, Seller shall be barred from submitting a claim and Boeing shall have no obligation for payment to Seller under this Section 12.0 except for those Products previously delivered and accepted by Boeing. 12.5 PARTIAL TERMINATION Any partial termination of an Order shall not alter or affect the terms and conditions of the Order or any Order with respect to Products not terminated. 13 12.6 PRODUCT PRICE Termination under any of the above paragraphs shall not result in any change to unit prices for Products not terminated. 12.7 EXCLUSIONS OR DEDUCTIONS A. All unliquidated advances or other payments made by Boeing to Seller pursuant to a terminated Order. B. Any claim which Boeing has against Seller; C. The agreed price for scrap allowance; D. Except for normal spoilage and any risk of loss assumed by Boeing, the agreed fair value of property that is lost, destroyed, stolen or damaged. 12.8 PARTIAL PAYMENT/PAYMENT Payment, if any, to be paid under this Section 12.0 shall be made thirty (30) days after settlement between the parties or as otherwise agreed to between the parties. Boeing may make partial payments and payments against costs incurred by Seller for the terminated portion of the Order, if the total of such payments does ont exceed the final amount determined to be due, Seller shall repay the xecess to, Boeing upon demand. 12.9 SELLER'S ACCOUNTING PRACTICES Boeing and Seller agree that Seller's "normal accounting practices" used in developing the price of the Product(s) shall also be used in determining the allocable costs at termination. For purposes of this Section 12.9, Seller's "normal accounting practices" refers to Seller's method of charging costs as either a direct charge, overhead expense, general administrative expense, etc. 12.10 RECORDS Unless otherwise provided in this Agreement or by law, Seller shall maintain all records and documents relating to the terminated portion of the Order for three (3) years after final settlement of Seller's termination claim. 13.0 EVENTS OF DEFAULT AND REMEDIES 13.1 EVENTS OF DEFAULT The occurrence of any one or more of the following events shall constitute an "Event of Default": A. Any failure by Seller to deliver, when and as required by this Agreement or any Order, any Product, except as provided in GTA Section 14.0; or 14 B. Any failure by Seller to provide an acceptable Assurance of Performance within the time specified in GTA Section 17.0, or otherwise in accordance with applicable law; or, C. Any failure by Seller to perform or comply with any obligation set forth in GTA Section 20.0; or D. Seller is or has participated in the sale, purchase or manufacture of airplane parts without the required approval of the FAA. E. Any failure by Seller to perform or comply with any obligation (other than as described in the foregoing Sections 13.1.A, 13.1.B, 13.1.C and 13.1.D) set forth in this Agreement and such failure shall continue unremedied for a period of thirty (30) days or more following receipt by Seller of notice from Boeing specifying such failure; or F. (a) the suspension, dissolution or winding-up of Seller's business, (b) Seller's insolvency, or its inability to pay debts, or its nonpayment of debts, as they become due, (c) the institution of reorganization, liquidation or other such proceedings by or against Seller or the appointment of a custodian, trustee, receiver or similar Person for Seller's properties or business, (d) an assignment by Seller for the benefit of its creditors, or (e) any action of Seller for the purpose of effecting or facilitating any of the foregoing. 13.2 REMEDIES If any Event of Default shall occur: A. CANCELLATION Boeing may, by giving written notice to Seller, immediately cancel this Agreement and/or any Order, in whole or in part, and Boeing shall not be required after such notice to accept the tender by Seller of any 15 Products with respect to which Boeing has elected to cancel this Agreement. B. COVER Boeing may manufacture, produce or provide, or may engage any other persons to manufacture, produce or provide, any Products in substitution for the Products to be delivered or provided by Seller hereunder with respect to which this Agreement or any Order has been canceled and, in addition to any other remedies or damages available to Boeing hereunder or at law or in equity, Boeing may recover from Seller the difference between the price for each such Product and the aggregate expense, including, without limitation, administrative and other indirect costs, paid or incurred by Boeing to manufacture, produce or provide, or engage other persons to manufacture, produce or provide, each such Product. C. SETOFF Boeing shall, at its option, have the right to set off against and apply to the payment or performance of any obligation, sum or amount owing at any time to Boeing hereunder or under any Order, all deposits, amounts or balances held by Boeing for the account of Seller and any amounts owned by Boeing to Seller, regardless of whether any such deposit, amount, balance or other amount or payment is then due and owing. D. TOOLING AND OTHER MATERIALS As compensation for the additional costs which Boeing will incur as a result of the actual physical transfer of production capabilities from Seller to Boeing or Boeing's designee, Seller shall upon the request of Boeing, transfer and deliver to Boeing or Boeing's designees title to any or all (i) Tooling, (ii) Boeing-Furnished material (iii) raw materials, parts, work-in-process, incomplete or completed assemblies, and all other Products or parts thereof in the possession or under the effective control of Seller or any of its subcontractors (iv) Proprietary Information and Materials of Boeing including without limitation planning data, drawings and other Proprietary Information and Materials relating to the design, production, maintenance, repair and use of Tooling, in the possession or under the effective control of Seller or any of its subcontractors, in each case free and clear of all liens, claims or other rights of any person. Seller shall be entitled to receive from Boeing reasonable compensation for any item accepted by Boeing which has been transferred to Boeing pursuant to this Section 13.2.E (except for any item the price of which shall have been paid to Seller prior to such transfer); provided, however, that such compensation shall not be paid directly to Seller, but shall be 16 accounted for as a setoff against any damages payable by Seller to Boeing as a result of any Event of Default. E. REMEDIES GENERALLY No failure on the part of Boeing in exercising any right or remedy hereunder, or as provided by law or in equity, shall impair, prejudice or constitute a waiver of any such right or remedy, or shall be construed as a waiver of any Event of Default or as an acquiescence therein. No single or partial exercise of any such right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. No acceptance of partial payment or performance of any of Seller's obligations hereunder shall constitute a waiver of any Event of Default or a waiver or release of payment or performance in full by Seller of any such obligation. All rights and remedies of Boeing hereunder and at law and in equity shall be cumulative and not mutually exclusive and the exercise of one shall not be deemed a waiver of the right to exercise any other. Nothing contained in this Agreement shall be construed to limit any right or remedy of Boeing now or hereafter existing at law or in equity. 14.0 EXCUSABLE DELAY If delivery of any Product is delayed by unforeseeable circumstances beyond the control and without the fault or negligence of Seller or of its suppliers or subcontractors (any and without the fault or negligence of Seller or of its Suppliers or subcontractors (any such delay being hereinafter referred to as "Excusable Delay"), the delivery of such Product shall be extended for a period to be determined by Boeing after an assessment by Boeing of alternate work methods. Excusable Delays may include, but are not limited to, acts of God, war, riots, acts of government, fires, floods, epidemics, quarantine restrictions, freight embargoes, strike or unusually severe weather, but shall exclude Seller's noncompliance with any rule, regulation or order promulgated by any governmental agency for or with respect to environmental protection. However, the above notwithstanding, Boeing expects Seller to continue production, recover lost time and support all schedules as established under this Agreement or any Order. Therefore, it is understood and agreed that (i) delays of less than two (2 days' duration shall not be considered to be Excusable Delays unless such delays shall occur within thirty (30) days preceding the scheduled delivery date of any Product and (ii) if delay in delivery of any Product is caused by the default of any of Seller's subcontractors or suppliers, such delay shall not be considered an Excusable Delay unless the supplies or services to be provided by such subcontractor or supplier are not obtainable from other sources in sufficient time to permit Seller to meet the applicable delivery schedules. If delivery of any Product is delayed by any Excusable Delay for more than three (3) months, 17 Boeing may, without any additional extension, cancel all or part of any Order with respect to the delayed Products, and exercise any of its remedies in accordance with GTA Section 13.2 provided, however, that Boeing shall not be entitled to monetary damages or specific performance to the extent Seller's breach is the result of an Excusable Delay. 15.0 SUSPENSION OF WORK Boeing may at any time, by written order to Seller, require Seller to stop all or any part of the work called for by this Agreement hereafter referred to as a "Stop Work Order" issued pursuant to this Section 15.0 On receipt of a Stop Work Order, Seller shall promptly comply with its terms and take all reasonable steps to minimize the occurrence of costs arising from the work covered by the Stop Work Order during the period of work stoppage. Within the period covered by the Stop Work Order (Including any extension thereof), but not to exceed thirty (30) days duration, Boeing shall either (i) cancel the Stop Work Order or (ii) terminate or cancel the work covered by the Stop Work Order in accordance with the provisions of GTA Section 12.0 or 13.0 In the event the Stop Work Order is canceled by Boeing or the period of the Stop Work Order (including any extension thereof) expires, Seller shall promptly resume work in accordance with the terms of this Agreement or any applicable Order. 16.0 TERMINATION OR CANCELLATION AND INDEMNITY AGAINST SUBCONTRACTOR CLAIMS Boeing shall not be liable for any loss or damage resulting from any termination for Buyer's convenience pursuant to GTA Section 12.1, except as expressly provided in GTA Section 12.3 or any cancellation under GTA Section 13.0 except to the extent that such cancellation shall have been determined by Boeing and Seller to have been wrongful, in which case such wrongful cancellations hall be deemed a termination pursuant to GTA Section 12.1 and therefore shall be limited to the payment to Seller of the Amount or amounts identified in GTA Section 12.37 As subcontractor claims are included in Seller's termination claim pursuant to GTA Section 12.3, Seller shall indemnify Boeing and hold Boeing harmless from and against (is) any and all claims, suits and proceedings against Boeing by any subcontractor or supplier of Seller in respect of any such termination and (ii) and any and all costs, expenses, losses, and damages incurred by Boeing in connection with any such claim, suit or proceeding. 17.0 ASSURANCE OF PERFORMANCE A. SELLER TO PROVIDE ASSURANCE If Boeing determines, at any time or from time to time, that it is not sufficiently assured of Seller's full, timely and continuing performance hereunder, or if for any other reason Boeing has reasonable grounds for insecurity, Boeing may request by notice to Seller, written assurance 18 (hereafter an "Assurance of Performance") with respect to any specific matters affecting Seller's performance hereunder, that Seller is able to perform all of its respective obligations under this Agreement when and as specified herein. Each Assurance of Performance shall be delivered by Seller to Boeing as promptly as possible, but in any event no later than 15 calendar days following Boeing's request therefore and each Assurance of Performance shall be accompanied by any information, reports or other materials, prepared by Seller, as Boeing may reasonably request. Boeing may suspend all or any part of Boeing's performance hereunder if Boeing fails to receive an Assurance of Performance from Seller satisfactory in form and substance to Boeing. B. Boeing may request one or more meetings with senior management or other employees of Seller for the purpose of discussing any request by Boeing for Assurance of Performance or any Assurance of Performance provided by Seller. Seller shall make such persons available to meet with representatives of Boeing as soon as may be practicable following a request for any such meeting by Boeing and Seller shall make available to Boeing any additional information reports or other materials in connection therewith as Boeing may reasonably request. 18.0 RESPONSIBILITY FOR PROPERTY On delivery to Seller or manufacture of acquisition by it of any materials, parts, Tooling or other property (excluding the Aircraft), title to any of which is held by Buyer, Seller shall assume the risk of and shall be responsible for any loss thereof or damage thereto. In accordance with the provisions of an Order, but in any event on completion thereof, Seller shall return such property to Buyer in the condition in which it was received except for reasonable wear and tear and except to the extent that such property has been incorporated in the Products delivered under such Order or has been consumed in the normal performance of work under such Order. Seller warrants to Boeing that it has good title to all inventory, work-in-process, tooling and materials to be supplied by Seller in the performance of its obligations under any Order ("Inventory")), and that pursuant to the provisions of such Order, it will transfer to Boeing title to such Inventory, whether transferred separately or as part of any Product delivered under the Order, free of any liens, charges, encumbrances or rights of others. 20.0 PROPRIETARY INFORMATION AND ITEMS Boeing and Seller shall each keep confidential and protect from disclosure all (a) confidential, proprietary, and/or trade secret information; (b) tangible items containing, conveying, or embodying 19 such information; and (c) tooling obtained from and/or belonging to the other in connection with this Agreement or any Order (collectively referred to as "Proprietary Information and Materials"). Boeing and Seller shall each use Proprietary Information and Materials of the other only in the performance of and for the purpose of this Agreement and/or any Order. Provided, however, that despite any other obligations or restrictions imposed by this Section 20.0, Boeing shall have the right to use and disclose of Seller's Proprietary Information and Materials as approved by Seller for the purposes of testing, certification, use, sale, or support of any products delivered under this Agreement, an Order, or any airplane, including such an item; and any such disclosure by Boeing shall, whenever appropriate, include a restrictive legend as approved by Seller for suitable to the particular circumstances. The restrictions on disclosure or use of Proprietary Information and Materials by Seller shall apply to all materials derived by Seller or others from Boeing's Proprietary Information and Materials. Upon Boeing's request at any time, and in any event upon the completion, termination or cancellation of this Agreement, Seller shall return all of Boeing's Proprietary Information and Materials, and all materials derived from Boeing's Proprietary Information and Materials to Boeing unless specifically directed otherwise in writing by Boeing. Seller shall not, without the prior written authorization of Boeing, sell or dispose of(as scrap or otherwise) any parts or other materials containing, conveying, embodying, or made in accordance with or by reference to any Proprietary Information and Materials of Boeing. Prior to disposing of such parts of materials as scrap, Seller shall render them unusable. Boeing shall have the right to audit Seller's compliance with this Section 20.0 Seller may disclose Proprietary Information and Materials of Boeing to its subcontractors as required for the performance of an Order, provided that each such subcontractor first assumes by written agreement, the same obligations imposed upon Seller under this Section 20.0 relating to Proprietary Information and Materials; and Seller shall be liable to Boeing for any breach of such obligation by such subcontractor. The provisions of this Section 20.0 are effective in lieu of, and will apply notwithstanding the absence of any restrictive legends or notices applied to Proprietary Information and Materials; and the provisions of this Section 20.0 shall survive the performance, completion, termination or cancellation of this Agreement or any Order This Section 20.0 supplements any and all other prior agreements or understandings between the parties to the extent that such agreements or understandings relate to Boeing's obligations relative to confidential, proprietary, and/or trade secret information, or tangible items containing, conveying, or embodying such information, obtained from Seller and related to any Product, regardless of whether disclosed to the receiving party before or after the effective date of this Agreement. 20 21.0 COMPLIANCE WITH LAWS 21.1 SELLER'S OBLIGATION Seller shall be responsible for complying with all laws, including, but not limited to, any statute, rule, regulation, judgment, decree, order, or permit applicable to its performance under this Agreement. Seller further agrees (1) to notify Boeing of any obligation under this Agreement which is prohibited under applicable environmental law. At the earliest opportunity but in all events sufficiently in advance of Seller's performance which obligation so as to enable the identification of alternative methods of performance, and (2) to notify Boeing at the earliest possible opportunity of any aspect of its performance which becomes subject to additional environmental regulation or which Seller reasonably believes will become subject to additional regulation during the performance of this Agreement. 21.2 GOVERNMENT REQUIREMENTS If any of the work to be performed under this Agreement is performed in the United States, Seller shall, via invoice or other form satisfactory to Boeing, certify that the Products covered by the Order were produced in compliance with Sections 6, 7, and 12 of the Fair Labor Standards Act (29 U.S. C. 201-291), as amended, and the regulations and orders of the U. S. Department of Labor issued thereunder. In addition, the following Federal Administration Regulations are incorporated herein b this reference except "Contractor" shall mean "Seller." FAR 52.222-26 "Equal Opportunity" FAR 52.222-35 "Affirmative Action for Special Disabled & Vietnam Era Veterans" FAR 52.222-36 "Affirmative Action for Handicapped Workers" 22.0 INTEGRITY IN PROCUREMENT Boeing's policy is to maintain high standards of integrity in procurement. Boeing's employees must ensure that no favorable treatment compromises their impartiality in the procurement process. Accordingly, B Boeing's employees must strictly refrain from soliciting or accepting any payment, gift, favor or thing of value which could improperly influence their judgment with respect to either issuing an Order or administering this Agreement. Consistent with this policy, Seller agrees not to provide or offer to provide any employees of Boeing any payment, gift, favor or thing of value for the purposes of improperly obtaining or rewarding favorable treatment in connection with any Order or this Agreement. Seller shall conduct its own procurement practices and shall ensure that its suppliers conduct their procurement practices consistent with these standards. If Seller has reasonable grounds to believe that this policy may have been violated, Seller shall immediately 21 report such possible violation to the appropriate Director of Materiel or Ethics Advisor of Boeing. 23.0 INFRINGEMENT Seller shall indemnify, defend and save Boeing and Customers harmless from all claims, suits, actions, awards (including but not limited to awards based on intentional infringement of patents known to Seller at the time of such infringement, exceeding actual damages, and/or including attorney's fees and/or costs), liabilities, damages, costs and attorneys' fees related to the actual or alleged infringement of any United States or foreign intellectual property (including but not limited to any right in a patent, copyright, industrial design or semiconductor mask work, or based on misappropriation or wrongful use of information or documents) and arising out of the manufacture, sale or use of Products by Boeing or Customers. Boeing and/or Customers shall duly notify Seller of any such claim, suit or action; and Seller shall at its own expense, fully defend such claim, suit or action on behalf of Boeing and/or Customers. Seller shall have no obligation under this Section 23.0 with regard to any infringement arising from: (i) Seller's compliance with formal specifications issued by Boeing where infringement could not be avoided in complying with such specifications or (ii) use or sale of Products in combination with other items when such infringement would not have occurred from the use or sale of those Products solely for the purpose for which they were designed or sold by Seller. For purposes of this Section 23.0 only, the term Customer shall not include the United States Government; and the term Boeing shall include The Boeing Company (Boeing) and all Boeing subsidiaries and all officers, agents, and employees of Boeing or any Boeing subsidiary. In no event will Seller's liability hereunder extend beyond thirty-six (36) months after First Delivery of product to Buyer. 24.0 BOEING'S RIGHTS IN SELLER'S PATENTS, COPYRIGHTS, TRADE SECRETS & TOOLING Seller hereby grants to Boeing an irrevocable, nonexclusive, paid-up worldwide license to practice and/or use, and license others to practice and/or use on Boeing's behalf, all of Seller's patents, copyrights, trade secrets (including, without limitation, designs, processes, drawings, technical data and tooling), industrial designs, semiconductor mask works, and tooling (collectively hereinafter referred to as "Licensed Property") related to the development, production, maintenance or repair of Products. Boeing hereafter retains all of the aforementioned license rights in Licensed Property, but Boeing hereby covenants not to exercise such rights except in connection with the making, having made, using and selling of Products or products of the same kind, and then only in the event of any of the following: 22 A. Seller discontinues or suspends business operations or the production of any or all of the Products; B. Seller is acquired by or transfers any or all of its rights to manufacture any Product to any third party, whether or not related; C. Boeing cancels this Agreement or any Order for default pursuant to GTA Section 13.0 herein; D. In Boeing's good faith judgment it becomes necessary, in order for Seller to comply with the terms of this Agreement or any Order, for Boeing to provide support to Seller (in the form of design, manufacturing, or onsite personnel assistance) substantially in excess of that which Boeing normally provides to its suppliers. E. Seller's trustee in bankruptcy (or seller as debtor in possession) fails to assume this Agreement and al Orders by formal entry of an order in the bankruptcy court within sixty (60) days after entry of an order for relief in a bankruptcy case of the Seller, or Boeing elects to retain its rights to Licensed Property under the bankruptcy laws; F Seller is at any time insolvent (whether measured under a balance sheet test or by the failure to pay debts as they come due) or the subject of any insolvency or debt assignment proceeding under state or nonbankruptcy law; or G. Seller voluntarily becomes a debtor in any case under bankruptcy law or in the event an involuntary bankruptcy petition is filed against Seller, such petition is not dismissed within sixty (60) days. As part of the license granted under this Section 24.0, Seller shall, at the written request of Boeing and at no additional cost to Boeing, promptly deliver to Boeing any and all Licensed Property considered by Boeing to be necessary to satisfy Boeing's requirements for Products and their substitutes. 25.0 NOTICE 25.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, mail, telex, teletype, telegram, facsimile, cable or other electronic transmission addressed to the respective party as set forth in the SBP Section 9.0 25.2 EFFECTIVE DATE The date on which any such communication is received by the addressee is the effective date of such communication. 23 25.3 APPROVAL OR CONSENT With respect to all matters subject to the approval or consent of either party, such approval or consent shall be requested in writing and is not effective until given in writing. With respect to Boeing, authority to grant approval or consent is limited to Boeing's Materiel Representative. 26.0 PUBLICITY Seller will not, and will require that its subcontractors and suppliers of any tier will not, (i) cause or permit to be released any publicity, advertisement, news release, public announcement, or denial or confirmation of the same, in whatever form, regarding any Order or Products, or the program to which they may pertain, or (ii) use, or cause or permit to be used, the Boeing name or any Boeing trademark in any form of promotion or publicity without Boeing's prior written approval. 27.0 TITLE AND RISK OF LOSS OF AIRCRAFT AND GOODS Title to the Aircraft shall remain at all times in Buyer or Customer during the period of time in which the Aircraft is in the possession of or under the care, custody or control of Seller; Seller shall be a bailee for hire during such period of time. Risk of loss of the Aircraft shall remain in Buyer or Customer except where Seller has risk of loss as a bailee for hire. 28.0 GENERAL/AIRPORT PREMISES LIABILITY INSURANCE AND HANGARKEEPERS LEGAL LIABILITY Seller warrants and represents to Buyer at all times during the performance of the Order, Seller shall maintain the following insurance and shall provide to Buyer no later than thirty (30) working days prior to delivery of the Aircraft to Seller, certificates of insurance evidencing coverage satisfactory to Buyer in compliance with the following: General Liability and/or Airport Liability insurance covering premises and operations of Seller in an amount not less than One Hundred Million Dollars ($100,000,000) combined single limit for bodily injury and property damage each occurrence; and Hangarkeepers Legal Liability insurance in an amount not less than One Hundred and Sixty Million Dollars ($160,000,000) each occurrence covering damage to, loss of or destruction of any 737-700 BBJ Aircraft which occurs due to the negligence of Seller while the Aircraft is in the care, custody or control of the Seller under this Agreement. Any such policy shall be with insurers reasonably acceptable to Boeing and shall contain a waiver of any rights of subrogation against Customer and Buyer, their subsidiaries and their respective directors, officers, employees and agents. 24 and whether arising out of any such Order or any other agreement between the parties. Boeing may settle all claims arising out of any Order, including termination claims, directly with Seller. Boeing may unilaterally assign any rights or title to property under the Order to any wholly-owned subsidiary of The Boeing Company. 31.0 NON-WAIVER Boeing's failure at any time to enforce any provision of an Order does not constitute a waiver of such provision or prejudice Boeing's right to enforce such provision at any subsequent time. 32.0 HEADING Section headings used in this Agreement are for convenient reference only and do not affect the interpretation of the Agreement. 33.0 PARTIAL INVALIDITY If any provision of any Order is or becomes void or unenforceable by force or operation of law, the other provisions shall remain valid and enforceable. 34.0 APPLICABLE LAW; JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance with, the law as set forth in SBP Section 5.0 35.0 AMENDMENT Oral statements and understandings are not valid or binding. Except, as otherwise provided in GTA Section 10.0 and SBP Section 12.0, no Order may be changed or modified except by a writing signed by Seller and Boeing's Materiel Representative. 36.0 LIMITATION Seller may not (except to provide an inventory of Products to support delivery acceleration and to satisfy reasonable replacement and Spares requirements) manufacture or fabricate Products or procure any goods in advance of the reasonable flow time required to comply with the delivery schedule in the applicable Order. Notwithstanding any other provision of an Order, Seller is not entitled to any equitable adjustment or other modification of such Order for any manufacture, fabrication, or procurement of Products not in conformity with the requirements of the Order, unless Boeing" written consent has first been obtained. Nothing in this Section 34.0 shall be construed as relieving Seller of any of its obligations under the Order. 25 37.1 INCLUSION OF TAXES IN PRICE All taxes, including but not limited to federal, state and local income taxes, value added taxes, gross receipt taxes, property taxes, and custom duties taxes are deemed to be included in the Order price, except applicable sales or use taxes on sales to Boeing ("Sales Taxes") for which Boeing has not supplied a valid exemption certificate or unless otherwise indicated on the applicable Order. 37.2 LITIGATION In the event that any taxing authority has claimed or does claim payment for Sales Taxes, Seller shall promptly notify Boeing, and Seller shall take such action as Boeing may direct to pay or protest such taxes or to defend against such claim. The actual and direct expenses, without the addition of profit and overhead, of such defense and the amount of such taxes as ultimately determined as due and payable shall be paid directly by Boeing or reimbursed to Seller. If Seller or Boeing is successful in defending such claim, the amount of such taxes recovered by Seller, which had previously been paid by Seller and reimbursed by Boeing or paid directly by Boeing, shall be immediately refunded to Boeing. 37.3 REBATES If any taxes paid by Boeing are subject to rebate or reimbursement, Seller shall take the necessary actions to secure such rebates or reimbursement and shall promptly refund to Boeing any amount recovered. 38.0 FOREIGN PROCUREMENT OFFSET With respect to work covered by the Order, Seller shall use its best efforts to cooperate with Boeing in the fulfillment of any foreign offset program obligation that Boeing may have accepted as a condition of the sale of Boeing's products. In the event that Seller solicits bids or proposals for, or procures or offers to procure any goods or services relating to the work covered by an Order from any source outside of the United States, Boeing shall be entitled, to the exclusion of all others, to all industrial benefits and other "offset" credits which may result from such solicitations, procurements or offers to procure. Seller agrees to take any actions that may be required on its part to assure that Boeing receives such credits. 39.0 ENTIRE AGREEMENT/ORDER OF PREFERENCE 39.1 ENTIRE AGREEMENT The Order sets forth the entire agreement and supersedes any and all other prior agreements understandings and communications between Boeing and Seller related to the subject matter of an Order. The rights 26 and remedies afforded to Boeing or Customers pursuant to any provisions of an Order are in addition to any other rights and remedies afforded by any other provisions of this Order, by law or otherwise. 39.2 INCORPORATED BY REFERENCE In addition to the documents previously incorporated herein by reference, the documents listed below are by this reference made a part of this Agreement: A. Engineering Drawing by Part Number and Related Outside Production Specification Plan (OPSP). B. Any other exhibits or documents agreed to by the parties to be a part of this Agreement. C. Order (excluding the documents identified in A and B above). D. Engineering Drawing by Part Number and, if applicable, related Outside Production Specification Plan (OPSP). E. Administrative Agreement (if applicable) F. Any other exhibits or documents the parties agree shall be part of the Agreement. 39.3 ORDER OF PRECEDENCE In the event of a conflict or inconsistency between any of the terms of the following documents, the following order of precedence shall control: A. SBP (excluding the Administrative Agreement identified in E below) as amended February 17, 1998. B. This General Terms Agreement (excluding the documents identified in D and F below) as amended February 17,1998. 27 29.1 INSURANCE Seller shall maintain continuously in effect a property insurance policy covering loss or destruction of or damage to all property in which Boeing does or could have an insurable interest pursuant to this Agreement, including but not limited to Tooling, Boeing-furnished property, raw materials, parts, work-in process, incomplete, or completed assemblies and all other products or parts thereof, and all drawings, specifications, data and other materials relating to any of the foregoing in each case to the extent in the possession or under the effective care, custody or control of Seller, in the amount of full replacement value thereof providing protection against all perils normally covered in an "all risk" property insurance policy (including without limitation fire, windstorm, explosion, riot, civil commotion, aircraft, earthquake, flood or other acts of God). Any such policy shall be in the form and with insurers acceptable to Boeing and shall (i) provide for payment of loss thereunder to Boeing, as loss payee, as its interests may appear and (ii) contain a waiver of any rights of subrogation against Boeing, its subsidiaries, and their respective directors, officers, employees and agents. 29.2 CERTIFICATE OF INSURANCE Prior to commencement of this Agreement, Seller shall provide to Boeing's Materiel Representative, for Boeing's review and approval, certificates of insurance reflecting full compliance with the requirements set forth in GTA Section 27.1. Such certificates shall be kept current and in compliance throughout the period of this Agreement and shall provide for thirty (30) days advanced written notice to Boeing's Materiel Representative in the event of cancellation, non-renewal or material change adversely affecting the interests of Boeing. 29.3 NOTICE OF DAMAGE OR LOSS Seller shall give prompt written notice to Boeing's Materiel Representative of the occurrence of any damage or loss to any property required to be insured herein. If any such property shall be damaged or destroyed, in whole or in part, by an insured peril or otherwise, and if no Event of Default shall have occurred and be continuing, then Seller may, upon written notice to Boeing, settle, adjust, or compromise any and all such loss or damage not in excess of Two Hundred Fifty Thousand Dollars ($250,000) in any one occurrence and Five Hundred Thousand Dollars ($500,000) in the aggregate. Seller may settle, adjust or compromise any other claim by Seller only after Boeing has given written approval, which approval shall not be unreasonably withheld. 30.0 RESPONSIBILITY FOR PERFORMANCE Seller shall be responsible for the requirements of this Agreement and any Order referencing this Agreement. Seller shall bear all risks of providing adequate facilities and equipment to perform each Order in accordance with the terms thereof. Seller shall include as part of its 28 subcontracts those elements of the Agreement which protect Boeing's rights including but not limited to right of entry provisions, proprietary information and rights provisions and quality control provisions. In addition, Seller shall provide to its subcontractors sufficient information to clearly document that the work being performed by Seller's subcontractor is to facilitate performance under this Agreement or any Order. Sufficient information may include but is not limited to Order number, GTA number or the name of Boeing's Materiel Representative. No subcontracting by seller shall relieve Seller of its obligation under the applicable Order. 30.1 SUBCONTRACTING Seller may not procure any Product, as defined in the applicable Order, from a third party in a completed or a substantially completed form without Boeing's prior written consent. Where required by the requirements of the Order, no raw material and/or material process may be incorporated in a Product unless: (a) Seller uses an approved source or (b) Boeing has surveyed and qualified Seller's receiving inspection personnel and laboratories to test the specified raw materials and/or material process. No waiver of survey and qualification requirements will be effective unless granted by Boeing's Engineering and Quality Control Departments. Utilization of a Boeing-approved raw material source does not constitute a waiver of Seller's responsibility to meet all specification requirements. 30.2 RELIANCE Boeing's entering into this Agreement is in part based upon Boeing's reliance on Seller's ability, expertise and awareness of the intended use of the Products. Seller agrees that Boeing and Boeing's customers may rely on Seller as an expert, and Seller will not deny any responsibility or obligation hereunder to Boeing or Boeing's customers on the grounds that Boeing or Boeing's customers provided recommendations or assistance in any phase of the work involved in producing or supporting the Products, including but not limited to Boeing's acceptance of specifications, test date or the Products. 30.3 ASSIGNMENT Each Order shall inure to the benefit of and be binding on each of the parties hereto and their respective successors and assigns, provided however, that no assignment of any rights or delegation of any duties under such Order is binding on Boeing unless Boeing's written consent has first been obtained. Notwithstanding the above, Seller may assign claims for monies due or to become due under any Order provided that Boeing may recoup or setoff any amounts covered by any such assignment against any indebtedness of Seller to Boeing, whether arising before or after the date of the assignment or the date of this Agreement, 29 39.4 DISCLAIMER Unless otherwise specified on the face of the applicable Order, any CATIA Dataset or translation thereof (each or collectively "Data") furnished by Boeing is furnished as an accommodation to Seller. It is the Seller's responsibility to compare such Data to the comparable two dimensional computer-aided design drawing to confirm the accuracy of the data. BOEING HEREBY DISCLAIMS, AND SELLER HEREBY WAIVES, ALL WARRANTIES AND LIABILITIES OF BOEING AND ALL CLAIMS ND REMEDIES OF SELLER, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY DEFECT IN ANY CATIA DATASET OR TRANSLATION THEREOF, INCLUDING, WITHOUT LIMITATION, ANY (A) IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, (B) ANY IMPLIED WARRANTY ARISING FROM COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE, (C) RECOVERY BASED UPON TORT, WHETHER OR NOT ARISING FROM DAMAGED PROPERTY, OR OTHERWISE BASED UPON DAMAGED PROPERTY, OR OTHERWISE BASED UPON LOSS OF USE OR PROFIT OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES. EXECUTED in duplicate as of the date and year first written above by the duly authorized representatives of the parties. THE BOEING COMPANY PATS, Inc by and through its Division Boeing Commercial Airplane Group Name: /s/ [Illegible] Name: /s/ [Illegible] -------------------------- ------------------------- Title: Buyer Title: President ------------------------- ------------------------ Date: February 17, 1998 Date: 2/17/98 ------------------------- ------------------------ 30 EX-10.18-1 56 EXHIBIT 10.18-1 SPECIAL BUSINESS PROVISIONS between THE BOEING COMPANY and PATS, INC. 6-5754-02-063 i SPECIAL BUSINESS PROVISIONS TABLE OF CONTENTS MANDATORY SECTIONS FIXED QTY OR REQUIREMENTS - -------------------------------------------- Section Item - ------- ---- 1.0 DEFINITIONS 2.0 PURCHASE ORDER NOTE 3.0 PRICES 3.1 Product Pricing 3.2 Manufacturing Configuration Baseline 3.3 Packaging 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT 5.0 APPLICABLE LAW/JURISDICTION 6.0 PRODUCT ASSURANCE 7.0 PAYMENT 7.1 Recurring Cost 7.2 Non-Recurring Cost 9.0 NOTICES 9.1 Addresses - -------------------------------------------------------------------------------- REQUIREMENTS SECTIONS 10.0 OBLIGATION TO PURCHASE AND SELL 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY 12.0 CHANGES 12.1 Changes to the Statement of Work 12.2 Computation of Equitable Adjustment 12.3 Obsolescence 12.4 Change Absorption 12.5 Planning Schedule 12.6 Value Engineering 13.0 SPARES AND OTHER PRICING 13.1 Spares 13.2 Short Flow Production Requirements ii TABLE OF CONTENTS Section Item - ------- ---- 13.4 Pricing of Boeing's Supporting Requirements 13.5 Pricing of Requirements for Modification or Retrofit 13.6 Similar to Pricing 14.0 STATUS REPORTS/REVIEWS 15.0 FOREIGN PROCUREMENT REPORT 17.0 ASSIGNMENT 19.1 Technical Work Product 19.2 Inventions and Patents 19.3 Works of Authorship and Copyrights 19.4 Pre-Existing Inventions and Works of Authorship - -------------------------------------------------------------------------------- SCD REQUIREMENTS CONTRACT 20.0 ADMINISTRATIVE AGREEMENT 21.0 GUARANTEED WEIGHT REQUIREMENTS 22.0 SUPPLIER DATA REQUIREMENTS 23.0 DEFERRED PAYMENT TERMS 24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS Attachment 1 Work Statement and Pricing Attachment 2 Foreign Procurement Report Attachment 3 Rates and Factors Attachment 4 Boeing AOG Coverage Attachment 5 Boeing AOG/Critical Shipping Notification ATTACHMENT 6 SUPPLIER DATA REQUIREMENTS LIST CUSTOMER SUPPORT ATTACHMENT 7 SUPPLIER DATA REQUIREMENTS LIST ENGINEERING iii AMENDMENTS AMEND NUMBER DESCRIPTION DATE APPROVAL - ------- ----------- ---- -------- iv SPECIAL BUSINESS PROVISIONS THESE SPECIAL BUSINESS PROVISIONS are entered into as of January 15, 1998 by and between PATS, INC., a Maryland corporation with its principal office in Columbia, Maryland ("Seller"), and The Boeing Company, a Delaware corporation with an office in Seattle, Washington acting by and through its division the Boeing Commercial Airplane Group ("Boeing"). RECITALS A. Boeing and Seller entered into a General Terms Agreement GTA #5-5754-02-063 dated January 15, 1998 (the "Agreement") which is incorporated herein and made a part hereof by this reference, for the sale by Seller and purchase by Boeing of Products. B. Boeing and Seller desire to include these Special Business Provisions ("SBP") relating to the sale by Seller and purchase by Boeing of Products. Now, therefore, in consideration of the mutual covenants set forth herein, the parties agree as follows: A. Boeing produces commercial airplanes. B. Seller desires to design, manufacture, install, test and certify auxiliary fuel tank systems for 737-700 BBJ Aircraft, and Seller wishes to utilize Buyer's proprietary technical requirements documents and other Buyer proprietary technical information and data for that purpose. C. Seller further desires to sell auxiliary fuel tank systems to Buyer and install such systems on 737-700 BBJ Aircraft as directed by Buyer. D. Buyer is willing to disclose its proprietary technical requirements documents and other of its proprietary information, data and documents to Seller and is prepared to monitor (and, at Buyer's discretion, assist with) Seller's design, installation, testing and certification of auxiliary fuel tank systems for 737-700 BBJ Aircraft; all on the condition that Seller will keep such proprietary documents, information and data confidential and not use such documents, information or data in any way in connection with the sale of such systems to any customer other than Buyer. E. Buyer and Seller wish to enter into an agreement establishing a framework for facilitating (1) the design, manufacture, testing and certification of auxiliary fuel tank systems by Seller, (2) the sale of such systems by Seller to Buyer, and (3) the installation of such systems, when purchased by Buyer, on aircraft owned by Buyer's customers; all in accordance with individual purchase orders which will subsequently be issued by Buyer and accepted by Seller. 1 1.0 DEFINITIONS The General Terms Agreement and Product Support and Assurance Agreement is incorporated herein and made a part hereof by reference, for the sale by Seller and purchase by Buyer of Products. The definitions used herein shall be the same as used in the General Terms Agreement Section 1.0. 2.0 PURCHASE ORDER NOTE The following note shall be contained in any Order to which these SBP and GTA are applicable: This Order is subject to and incorporates by this reference SBP#________ and GTA #6-5754-02-033 between The Boeing Company and PATS, Inc. dated February 17, 1998. Each Order bearing such note shall be governed by and be deemed to include the provisions of these SBP. 3.0 PRICES 3.1 PRODUCT PRICING TO BE USED FOR FIXED QUANTITY (120 SHIPSETS) BUYS. REQUIREMENT W/ ABNORMAL ESCALATION - TO BE USED FOR REQUIREMENTS (PERIOD OF PERFORMANCE) BUYS The prices and applicable period of performance of Products scheduled for delivery under this SBP are set forth in Attachment 1. Prices are in United States dollars, F.O.B. SELLER'S PLANT. Said prices shall be subject to escalation as set forth in Attachment 1. 3.1.1 OPTION PRICING Seller irrevocably grants to Boeing the option to purchase any quantity of additional Products on the terms and conditions set forth in this SBP at the prices set forth herein, increased or decreased by any equitable adjustments provided herein. 3.1.2 EXERCISE OF OPTION Boeing may exercise such option by written notice to Seller at any time prior to the last delivery of the Product(s) to Boeing; provided however, that such option must be exercised in sufficient time to permit Seller to support Boeing's required deliveries. Seller agrees to provide Boeing with written notice at least sixty (60) days prior to the date when, in Seller's opinion, the option must be exercised. Boeing may extend the option exercise date by purchasing long lead materials, or authorizing Seller to purchase such materials on terms acceptable to Boeing, if such purchase would have the effect of extending the date for assuring production continuity. Boeing reserves the right to (a) not exercise the option and commence new negotiations with Seller for additional quantities of Products; or (b) purchase such additional quantities of Products from third parties. The purchase of such additional quantities of Products from third parties shall not abrogate any of Seller's obligations to Boeing pursuant to the Agreement. 2 3.2 MANUFACTURING CONFIGURATION BASELINE Unit pricing for each Product or part number shown in Attachment 1 is based on the latest revisions of the engineering drawings or specifications at the time of the signing of this SBP. 4.0 GOVERNING QUALITY ASSURANCE REQUIREMENT Pick the appropriate governing document for applicable procurement package. All work performed under this SBP shall be in accordance with the following document which is incorporated herein and made a part hereof by this reference: a) Document D1-8000A, "Quality Control Requirements for Boeing Suppliers," as amended from time to time. OR b) All work performed under this SBP shall be in accordance with the applicable drawings and specifications and Seller's existing quality assurance system in place at the time the Product(s) are manufactured. 5.0 APPLICABLE LAW JURISDICTION Each Order, including all matters of construction, validity and performance, shall in all respects be governed by, and construed and enforced in accordance only with the law of the State of Washington as applicable to contracts entered into and to be performed wholly within such State, between citizens of such State, without reference to any rules governing conflicts of law. Seller and Buyer hereby irrevocably consents to and submits to the jurisdiction of the applicable courts of Washington and the federal courts therein for the purpose of any suit, action or other judicial proceeding arising out of or connected with any Order or the performance or subject matter thereof. Seller hereby waives and agrees not to assert by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that (a) Seller is not personally subject to the jurisdiction of the above-named courts, (b) the suit, action or proceeding is brought in an inconvenient forum or (c) the venue of the suit, action or proceeding is improper. 6.0 PRODUCT ASSURANCE 6.1 GOVERNING DOCUMENT Seller acknowledges that Boeing and Customers must be able to rely on each Product performing as specified and that Seller will provide all required support. Accordingly, the following provisions and document(s) are incorporated herein and made a part hereof: Seller warrants to Boeing and Customers that Products shall: (a) conform in all respects to all the requirements of the Order; (b) be free from all defects in materials and workmanship; and (c) to the extent not manufactured pursuant to detailed designs furnished by Boeing, be free from all defects in design and be fit for the intended purposes. 3 SCD CONTRACTS REPAIRABLE 6.2 PRODUCT SUPPORT AGREEMENT-SUPPLIER DESIGNED EQUIPMENT."DOCUMENT NO. D6-51880. Boeing may choose initially not to extend the Seller's full warranty of Product to Customers. This action shall in no way relieve Seller of any obligation set forth in the warranty documents listed above. Boeing at its sole option may extend Seller's full warranty of Product to its Customers at any time. Furthermore, Seller agrees to provide support to the Product as long as any model Aircraft using or supported by the Product remains in service. 7.0 PAYMENT 7.1 RECURRING PRICE Unless otherwise provided under the applicable Order (see Attachment Number -7-), Payment shall be net thirty (30) calendar days. Payment due dates, including discount periods, shall be computed from (a) the date of receipt of the Product, (b) the date of receipt of a correct invoice or (c) the scheduled delivery date of such Product, whichever is last. Any discount shall be taken on the full amount of the invoice. All payments are subject to adjustment for shortages, credits and rejections. 7.2 NON-RECURRING PRICE/SPECIAL CHARGES Unless otherwise provided in the applicable Order, any non-recurring price payable by Boeing under Attachment 1 shall be paid within the term discount period or thirty (30) calendar days (whichever is later) after receipt by Boeing of both acceptable Products and a correct invoice. 9.0 NOTICES 9.1 ADDRESSES Notices and other communications shall be given in writing by personal delivery, United States mail, telex, teletype, telegram, facsimile, cable or electronic transmission addressed to the respective party as follows: To Boeing: Attention: Peter M. Castner: M/S 38-EW BOEING COMMERCIAL AIRPLANE GROUP MATERIEL DIVISION P.O. Box 3707 Seattle, Washington 98124-2207 (425) 266-0755 To Seller: Mr. George Toly PATS, Inc. 9570 Berger Road Colombia, MD 21046-1569 4 THE FOLLOWING SECTIONS TO BE USED IN ALL REQUIREMENTS/PERIOD OF PERFORMANCE TYPE CONTRACTS 10.0 OBLIGATION TO PURCHASE AND SELL TO BE USED IN REQUIREMENTS CONTRACT WITH MULTIPLE RELEASES Boeing and Seller agree that in consideration of the prices set forth under Attachment 1, Boeing shall issue Orders for Products from time to time to Seller for Boeing's requirements. Such Products shall be shipped at any scheduled rate of delivery, as determined by Boeing, and Seller shall sell to Boeing. Boeing's requirements of such Products, provided that, without limitation on Boeing's right to determine its requirements, Boeing shall not be obligated to issue any Orders for any given Product if: A. Any of Boeing's customers specify an alternate product; B. Such Product is, in Boeing's reasonable judgment, not technologically competitive at any time, for reasons including but not limited to the availability of significant changes in technology, design, materials, specifications, or manufacturing processes which result in a reduced price or weight or improved appearance, functionality, maintainability or reliability; C. Boeing gives reasonable notice to Seller of a change in any of Boeing's aircraft which will result in Boeing no longer requiring such Product for such aircraft; D. Seller has materially defaulted in any of its obligations under any Order, whether or not Boeing has issued a notice of default to Seller pursuant to GTA Section 13.0; or, E. Boeing reasonably determines that Seller cannot support Boeing's requirements for Products in the amounts and within the delivery schedules Boeing requires. 11.0 COST AND FINANCIAL PERFORMANCE VISIBILITY - FOR BUYER DIRECTED CHANGES Seller shall provide all necessary cost support data, source documents for direct and indirect costs, and assistance at the Seller's facility for cost performance reviews performed by Boeing pursuant to any Change Order. 12.0 CHANGES 12.1 CHANGES TO THE STATEMENT OF WORK Boeing may direct Seller within the scope of the applicable Order and in accordance with the provisions of GTA Section 11 to increase or decrease the work to be performed by the Seller in the manufacture of any Product. 12.2 COMPUTATION OF EQUITABLE ADJUSTMENT (OPTIONAL) The Rates and Factors set forth in Attachment 3, which by this reference is incorporated herein, shall be used to determine the equitable adjustment, if any, (including equitable adjustments, if any, in the prices of Products to be incorporated in Derivative Aircraft),to be paid by Boeing pursuant to SBP Section 12.1 and GTA Section 11 for each individual change. 5 OBSOLESCENCE DOLLAR VALUE TO BE DETERMINED-DEFAULT VALUE $2,500 12.3 OBSOLESCENCE Claims for obsolete or surplus material and work-in-process created by change orders issued pursuant to this Section shall be subject to the procedures set forth in GTA Section 11, except that Seller may not submit a claim for obsolete or surplus material resulting from an individual change order that has a total claim value of Twelve Hundred and fifty dollars ($1,250) or less. Payment for obsolete or surplus materials shall be made by check deposited as first class mail to the address designated by Seller in SBP Section 9. Payment will be made on the tenth (10th) day of the month following the month of the obsolescence claim settlement. 12.4 CHANGE ABSORPTION (OPTIONAL) 12.4.1 PRIOR TO 100% ENGINEERING RELEASE (DRAWING REVISION LEVEL NEW) 12.4.1.1 GENERALLY Notwithstanding the provisions of GTA Section 10.0 and SBP Section 12.1, no equitable adjustment in the prices or schedules of any Order shall be made for any change initiated by Boeing made prior to the date on which all engineering drawings that change the technical requirements, descriptions, specifications, statement of work, drawing or designs ("Technical Change(s)") have been released by Boeing ("100% Engineering Release") provided, that an equitable adjustment shall be made for: a. Any Technical Change which is a change BETWEEN raw material classifications such as a change from aluminum to steel or titanium to plastic. Not included as a Technical Change for purposes of this Section are changes WITHIN a raw material classification such as a change from 7050 Aluminum to 7075 Aluminum; b. Any Technical Change which adds or deletes a process specification including but not limited to chem milling, chrome plating, anodizing, painting, priming and heat treating. 12.4.1.2 CLAIMS Claims for equitable adjustment for Technical Changes shall be submitted in writing within thirty (30) days after 100% Engineering Release. 12.4.2 SUBSEQUENT TO 100% ENGINEERING RELEASE 12.4.2.1 GENERALLY Notwithstanding the provisions of GTA Section 10.0 and SBP Section 12.1, no equitable adjustment shall be made to the recurring or non-recurring prices after the date of 100% Engineering Release for any change initiated by Boeing unless the value of such change (debit or credit) is greater than or equal to two percent (2%) of the then current unit price for the Product (recurring) or is greater than or equal to two percent (2%) of the total then current nonrecurring price as set forth in Attachment 1. For purposes of this Section, the then current unit price or total nonrecurring price shall be the price identified in Attachment 1 plus any and all price adjustments agreed to previously by the parties. 6 12.4.2.2 CLAIMS Claims shall be made individually for each Product and for each change. Each claim shall be considered separately for application of the two percent (2%) threshold. Changes may not be combined for the purposes of exceeding the two percent (2%) threshold set forth herein. 12.6.1 SUBMISSION OF PROPOSAL Proposals shall be submitted to Boeing's Material Representative. Boeing shall not be liable for any delay in acting upon a proposal. Boeing's decision to accept or reject any proposal shall be final. If there is a delay and the net result in savings no longer justifies the investment, Seller will not be obligated to proceed with the change. Seller has the right to withdraw, in whole or in part, any proposal not accepted by Boeing within the time period specified in the proposal. Seller shall submit, as a minimum, the following information with the proposal: a. description of the difference between the existing requirement and the proposed change, and the comparative advantages and disadvantages of each; b. the specific requirements which must be changed if the proposal is adopted; c. the cost savings and Seller's implementation costs; d. Each proposal shall include the need dates for engineering release and the time by which a proposal must be approved so as to obtain the maximum cost reduction. 12.6.2 ACCEPTANCE AND COST SHARING Boeing may accept, in whole or in part, any proposal by issuing a change order. Until such change has been issued, Seller shall remain obligated to perform in accordance with the terms and requirements of the original Order as written. Boeing and Seller shall share the savings as follows: (50%) savings to Boeing; (50%) savings to Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Each party shall be responsible for its own implementation costs, including but not limited to non-recurring costs. 12.6.3 COST SAVINGS COMPUTATION A change order shall be issued by Boeing and the unit price shall be reduced in an amount equal to the savings portion attributable to Boeing as set forth above. The applicable unit price as set forth in Attachment 1 Statement of Work shall be amended to reflect such change.
EXAMPLE: ------- Current Price: $600.00 Proposed Cost Savings: $100.00/unit Boeing's Percentage: 50.0% Seller's Percentage: 50.0%
7 STEP BY STEP COMPUTATION: 1. $100.00 unit savings x 50.0% Boeing's percentage of savings = $50.00 Boeing savings. 2. $100.00 unit savings x 50.0% Seller's percentage of savings = $50.00 Seller savings. 3. Net affect to the unit cost = $50.00 New Unit Price For Units = $550.00 12.6.4 WEIGHT REDUCTION PROPOSALS Seller is encouraged to submit proposals to Boeing that reduce the Product's weight without impairing any essential functions or characteristics of the Product. Seller shall submit such proposals in accordance with SBP Section 12.6.1 above. The amount of any costs or savings that result from a weight reduction proposal shall be agreed by Boeing and Seller. Seller shall include with each proposal verifiable cost records and other data as required by Boeing for proposal review and analysis. Boeing may accept in whole or in part, any such proposal by issuing a change order to the applicable Order. 13.0 SPARES AND OTHER PRICING 13.1 SPARES For purposes of this Section, the following definitions shall apply: A. AIRCRAFT ON GROUND (AOG) - means the highest Spares priority. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated AOG by Boeing. Such effort includes but is not limited to working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such AOG Spare within two (2) hours of receipt of an AOG Spare request. B. CRITICAL - means an imminent AOG work stoppage. Seller will expend best efforts to provide the earliest possible delivery of any Spare designated Critical by Boeing. Such effort includes but is not limited to working two (2) shifts a day, five (5) days a week and use of premium transportation. Seller shall specify the delivery date and time of any such Critical Spare within the same working day of receipt of a Critical Spare request. C. EXPEDITE (CLASS I) - means a Spare required in less than Seller's normal leadtime. Seller will expend best efforts to meet the requested delivery date. Such effort includes but is not limited to working overtime and use of premium transportation. D. ROUTINE (CLASS III) - means a Spare required in Seller's normal leadtime. E. POA REQUIREMENT (POA) - means any detail component needed to replace a component on an End Item Assembly currently in Boeing's assembly line process. Seller shall expend best efforts feasible to provide the earliest possible delivery of any Spare designated as POA by Boeing. Such effort includes but is not limited to 8 working twenty-four (24) hours a day, seven days a week and use of premium transportation. Seller shall specify the delivery date and time of any such POA within two (2) hours of an AOG Spare request. F. IN-PRODUCTION - means any Spare with a designation of AOG, Critical, Expedite, Routine, POA or End Item Assembly which is in the current engineering configuration for the Product and is used on a model aircraft currently being manufactured by Boeing. G. NON-PRODUCTION REQUIREMENTS - means any Spare with a designation of AOG, Critical, Expedite and Routine requirements which is used on model aircraft no longer being manufactured by Boeing (Post Production) or is in a non-current engineering configuration for the Product (Out of Production). H. BOEING PROPRIETARY SPARE - means any Spare which is manufactured (i) by Boeing, or (ii) to Boeing's detailed designs with Boeing's authorization or (iii) in whole or in part using Boeing's Proprietary Materials. 13.1.1 SPARES SUPPORT Seller shall provide Boeing with a written Spares support process describing Seller's plan for supporting AOG and Critical commitments and manufacturing support. The process must provide Boeing with the name and number of a twenty-four (24) hour contact for coordination of AOG and Critical requirements. Such contact shall be equivalent to the coverage provided by Boeing to its Customers as outlined in Attachment 4 "Boeing AOG Coverage" which is incorporated herein and made a part hereof by this reference. Seller shall notify Boeing as soon as possible via fax, telecon, or as otherwise agreed to by the parties of each AOG and Critical requirement shipment using the form identified in Attachment 5 "Boeing AOG and Critical Shipping Notification". Such notification shall include time and date shipped, quantity shipped, Order, pack slip, method of transportation and air bill if applicable. Seller shall also notify Boeing immediately upon the discovery of any delays in shipment of any requirement and identify the earliest revised shipment possible. 13.1.2 RECLASSIFICATION OR RE-EXERCISES Boeing may on occasion, instruct Seller to re-prioritize or reclassify an existing requirement in order to improve or otherwise change the established shipping schedule. Seller shall expend the effort required to meet the revised requirement as set forth above in the definitions of the requirements. Seller's commitment of a delivery schedule shall be given in accordance with that set forth above for the applicable classification but in no case shall it exceed twenty-four (24) hours from notification by Boeing. 13.1.3 SPARE PRICING Pricing for SCD Spare(s), end item and details, shall be as set forth in the applicable Spares pricing catalog in effect at the time the Spare(s) are ordered. Said pricing shall be fair and reasonable. The price for Boeing Proprietary Spare(s), end item and details, shall be the price for the Products as listed in Attachment 1, in effect at the time the Spare(s) are ordered. POA parts shall be priced so that the sum of the prices for all POA parts of an End Item Assembly equals the applicable recurring portion of the End Item Assembly. 9 13.1.4 SPECIAL HANDLING The price for all effort associated with the handling and delivery of Spare(s) is deemed to be included in the price for such Spare(s). Provided, that if Boeing directs delivery of Spares to an F.O.B. point other than Seller's plant, Boeing shall reimburse Seller for shipping charges, including insurance, paid by Seller from the plant to the designated F.O.B. point. Such charges shall be shown separately on all invoices. 13.2 SHORT FLOW PRODUCTION REQUIREMENTS Boeing shall pay no expedite charges for production requirements released less than Seller's current ROLT. Seller agrees to support Boeing's short flow requirements with its best effort. 14.0 STATUS REPORTS/REVIEWS When requested by Boeing, Seller shall update and submit, as a minimum, monthly status reports on data requested by Boeing using a method mutually agreed upon by Boeing and Seller. When requested by Boeing, Seller shall provide to Boeing a manufacturing milestone chart identifying the major purchasing, planning and manufacturing operations for the applicable Product(s). Upon request by Boeing, a program review may be held between the parties. The location of such review shall be mutually agreed to by the parties. The purpose of the review is to improve communication and understanding between the parties to ensure program success. 17.0 ASSIGNMENT Subject to the provisions of SBP, Section 25.0 below, Boeing and Seller agree that Boeing may, in its discretion, assign, in part or in whole, its purchasing obligations under the Agreement or any Order, as applicable, at the prices set forth in Attachment 1 thereof. Boeing reserves the right to rescind its assignment at anytime. Boeing's assignment of purchasing obligation includes scheduling, issuance of Order(s), receival and inspection of Products, acceptance or rejection of Products, payment for accepted Products, and ensuring conformance to the quality assurance system requirements. Boeing shall retain all other rights and obligations pursuant to the applicable terms and conditions. In addition, Boeing reserves the right, where necessary, to coordinate with and mediate between Seller and any assignee regarding such assignment. SCD SECTIONS 20.0 ADMINISTRATIVE AGREEMENTS The Administrative Agreement sets forth certain obligations of the parties relating to the administration of each Order, and such agreement is incorporated herein and made a part hereof by this reference. 21.0 GUARANTEED WEIGHT REQUIREMENTS Seller acknowledges the importance to Boeing of guaranteed weight requirements. Each Product shall strictly conform to the guaranteed weight requirement set forth in the 10 applicable Specification. If a Product fails to conform to such guaranteed weight requirement, Boeing may reject delivery of any such Product and take any other action as set forth in GTA Section 8.3, or any other remedy available to Boeing under this Agreement, any Order and applicable law. 22.0 SUPPLIER DATA REQUIREMENTS Supplier shall provide to Boeing the documents listed in Attachments 6 and 7 hereto, which are incorporated herein and made a part hereof by this reference. Seller shall comply with the schedules listed in such Attachments. 24.0 SOFTWARE PROPRIETARY INFORMATION RIGHTS Seller hereby grants to Boeing a perpetual, nonexclusive, paid-up, worldwide license to reproduce, distribute copies of, perform publicly, display publicly, and make derivative works from software included in or provided with or for Products (Software) and related information and materials (Software Documentation) as reasonably required by Boeing in connection with (i) the testing, certification, use, sale, or support of a Product, or the manufacture, testing, certification, use, sale, or support of any aircraft including and/or utilizing a Product, or (ii) the design or acquisition of hardware or software intended to interface with Software. The license granted to Boeing under this Section 24.0, also includes the right to grant sublicenses to Customers as reasonably required in connection with Customers' operation, maintenance, overhaul, and modification of any aircraft including and/or utilizing Software. All copies and derivative works made pursuant to the foregoing license or any sublicense to a Customer will automatically become the property of Boeing or Customer, and Boeing agrees to preserve Seller's copyright notice thereon to the extent that such a notice was included with the original Software and/or Software Documentation. Seller acknowledges that Boeing is the owner of all Software and Software Documentation provided to or made by Boeing or Customers pursuant to the Agreement and this SBP and, Seller hereby authorizes Boeing and Customers to dispose of, and to authorize the disposal of, the possession of any and all Software by rental, lease or lending, or by any other act or practice in the nature of rental, lease, or lending. EXECUTED in duplicate as of the date and year first set forth above by the duly authorized representatives of the parties. THE BOEING COMPANY PATS, Inc. By and Through its Division Boeing Commercial Airplane Group Name: /s/ [Illegible] Name: /s/ [Illegible] ----------------------------- ----------------------------- Title: Buyer Title: President ---------------------------- ---------------------------- Date: Feb. 17, 1998 Date: 2/17/98 ----------------------------- ----------------------------- 11 EX-10.18-2 57 EXHIBIT 10.18-2 [LETTERHEAD] JOHN HINSON CHIEF FINANCIAL OFFICER January 15,1999 Via Facsimile to 206-932-4863 and email to peter.m.castner@boeing.com Mr. Peter M. Castner Buyer Boeing Business Jets Seattle Washington, 98124-2207 Dear Peter: This letter will confirm the understanding of DeCrane Aircraft Holdings, Inc. ("DAH") with Boeing Business Jets ("Boeing")") as respects (i) the proposed purchase by DAH of all of the stock of PATS, Inc. ("PATS") pursuant to an Agreement for Purchase and Sale of Stock (the "Stock Purchase Agreement") and (ii) the agreement between Boeing and PATS for the purchase by Boeing from PATS of auxiliary gas tanks (the "Tank Agreement"). In order for DAH to proceed with the closing of the Stock Purchase Agreement, it needs to obtain certain consents and reach certain agreements both as set forth below in this letter: 1. By its signature on this letter, Boeing does hereby consent to the change of control of PATS from its existing owners to DAH, a subsidiary of DLJ Merchant Banking Partners, II, an affiliate of Donaldson Lufkin Jenrette Securities Corporation; 2. Boeing hereby confirms that as of the date of its execution of this letter, that PATS is not in default of the Tank Agreement; 3. Except as set forth on Schedule 3 to this letter, Boeing has no claims against PATS for failure to comply with the terms and conditions of the Tank Agreement; 4. DAH would not purchase the stock of PATS pursuant to the Stock Purchase Agreement if it were likely that Boeing were to assert a right to claim a default by PATS in the Tank Agreement. Accordingly, by its signature on this letter this will confirm that Boeing does not presently intend to declare a default by PATS of the Tank Agreement and Boeing will notify DAH and PATS of all items of unsatisfactory performance in order to give DAH a reasonable time after the closing of the Stock Purchase Agreement to cause PATS to cure any deficiencies of performance in the Tank Agreement. 5. In order to close the purchase of stock pursuant to the Stock Purchase Agreement, Boeing hereby agrees to pay DAH the sum of $5.0 million; such amount shall be repaid to Boeing by DAH together with interest on the unpaid balance at 8% in the event that DAH does not consummate the purchase of 100% of the stock of PATS, Inc. ("PATS") on or before February 5, 1999. At such time as DAH is the owner of 100% of the stock of PATS, the amount paid by Boeing shall be contributed by DAH to PATS and concurrently such amount shall constitute a "customer deposit" of Boeing to PATS, which customer deposit shall be applied as follows: December 21, 1999 $1,330,000.00 June 21, 2000 $1,330,000.00 December 21, 2000 $1,330,000.00 June 21, 2001 $1,330,000.00 December 21, 2001 $ 371,900.00
(The above amounts are subject to confirmation by Boeing and DAH So long as PATS perform the Tank Agreement, neither DAH nor PATS shall have any liability to repay the customer deposit. In the event that PATS fails to perform the Tank Agreement and in the event Boeing terminates the Tank Agreement, Boeing shall receive either (i) payment in immediately available funds in the amount specified in the chart above as to any Tanks not delivered and/or installed or (ii) a credit to any and all obligations owing from Boeing to PATS with respect to the Tank Contract. 6. DAH shall on the Closing Date of the Purchase Agreement and concurrent with Boeing's payment of $5 million, deliver to Boeing a Guaranty of PATS obligations to Boeing in the form enclosed with this letter. 7. The learning curve cost savings benefit ("CCIP") will (i) commence after the 5th aircraft (instead of the 10th aircraft) based upon the first five installations; in addition there will be a second measurement period which will occur only upon the completion of the 10th aircraft after the issuance of an STC and such measurement will be based on the installations of the 6th through 10th aircraft following such STC issuance. 8. Boeing will make milestone payments equal to 10% of the purchase price of Tanks 37 through 46 concurrent with the issuance of Purchase Orders for said shipsets. The balance of the purchase price for such shipsets shall be due and Peter M. Castner Page 3 payable by Boeing upon the completion of manufacture and assembly of each of shipsets 37 through 46. Please have this letter signed by a person authorized to execute it on behalf of Boeing to confirm the consent and agreements specified above. It is also my understanding that Boeing will work with Mark Ryan to schedule training. We appreciate the cooperation you have given DAH in the proposed purchase of the stock of PATS. The closing of the transaction is now scheduled for either January 20 or 21 in Baltimore, Maryland. Please get back to me as quickly as possible if anything further than this letter is required. Sincerely, /s/ - ---------------------- John R. Hinson Chief Financial Officer Agreed to: /s/ - ---------------------- By - ---------------------- Its - ---------------------- Date cc: R. Jack DeCrane Jeff Nerland Steve Silverman EX-12.1 58 EX-12.1 EXHIBIT 12.1 DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES EARNINGS TO FIXED CHARGES RATIO (DOLLARS IN THOUSANDS)
(PREDECESSOR) (SUCCESSOR) (PRO FORMA) --------------------------------------------------------- ------------- ------------- EIGHT MONTHS FOUR MONTHS TWELVE MONTHS YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ------------------------------------------ AUGUST 31, DECEMBER 31, DECEMBER 31, 1994 1995 1996 1997 1998 1998 1998 --------- --------- --------- --------- ------------- ------------- ------------- Earnings: Income (loss) before income taxes, accounting change and extraordinary item............. $ (1,816) $ (2,368) $ (105) $ 8,598 $ 6,081 $ (2,992) $ (3,213) Minority interest in income of subsidiaries with fixed charges........................ 8 85 193 112 48 82 130 Fixed charges.................... 3,701 4,331 4,785 3,842 3,117 7,217 25,547 --------- --------- --------- --------- ------------- ------------- ------------- $ 1,893 $ 2,048 $ 4,873 $ 12,552 $ 9,246 $ 4,307 $ 22,464 --------- --------- --------- --------- ------------- ------------- ------------- --------- --------- --------- --------- ------------- ------------- ------------- Fixed charges: Interest expense, including amortization of debt discounts and issuance costs (none capitalized)................... $ 3,244 $ 3,821 $ 4,248 $ 3,154 $ 2,350 $ 6,852 $ 24,236 Interest component of rentals (1)............................ 457 510 537 688 767 365 1,311 --------- --------- --------- --------- ------------- ------------- ------------- $ 3,701 $ 4,331 $ 4,785 $ 3,842 $ 3,117 $ 7,217 $ 25,547 --------- --------- --------- --------- ------------- ------------- ------------- --------- --------- --------- --------- ------------- ------------- ------------- Earnings to fixed charges ratio: Ratio.......................... -- -- 1.0x 3.3x 3.0x -- -- Deficiency..................... $ 1,808 $ 2,283 $ -- $ -- $ -- $ 2,910 $ 3,083
- ------------------------------ (1) Reflects one-third of rental expense under operating leases considered to represent interest cost. EX-21.1 59 EX-21.1 Exhibit 21.1 SUBSIDIARIES OF THE COMPANY Aerospace Display Systems, Inc., a Delaware corporation Audio International, Inc., an Arkansas corporation Audio International Sales, Inc., a U.S. Virgin Islands corporation Avtech Corporation, a Washington corporation Cory Components, Inc., a California corporation Dettmers Industries, Inc., a Delaware corporation Elsinore Aerospace Services, Inc., a California corporation Elsinore Engineering, Inc., a Delaware corporation Flight Refueling, Inc., a Maryland corporation Hollingsead International, Inc., a California corporation Hollingsead International, Ltd., a U.K. corporation Patrick Aircraft Tank Systems, Inc., a Maryland corporation PATS, Inc., a Maryland corporation PATS Aircraft and Engineering Corporation, a Maryland corporation PATS Support, Inc., a Maryland corporation Tri-Star Electronics Europe S.A., a Swiss corporation Tri-Star Electronics International, Inc., a California corporation Tri-Star Technologies, Inc., a California general partnership EX-23.1 60 EX-23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated February 19, 1999 relating to the consolidated financial statements of DeCrane Aircraft Holdings, Inc., our report dated June 12, 1998 relating to the financial statements of Avtech Corporation, and our report dated January 25, 1999 relating to the consolidated financial statements of PATS, Inc., which appear in such Prospectus. We also consent to the application of our report dated February 19, 1999 to the Financial Statement Schedule for the years ended December 31, 1996 and 1997, the eight months ended August 31, 1998 and the four months ended December 31, 1998 listed under Item 16(b) of this Registration Statement when such schedule is read in conjunction with the financial statements referred to in our report. The audits referred to in our report dated February 19, 1999 also included this schedule. We also consent to the reference to us under the heading "Experts" in such Prospectus. PRICEWATERHOUSECOOPERS LLP Los Angeles, California March 2, 1999 EX-27.1 61 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000880765 DECRANE AIRCRAFT HOLDINGS, INC. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 3,518 0 31,022 581 34,281 76,437 29,934 1,774 330,927 30,404 184,953 0 0 0 97,921 330,927 150,433 150,433 102,840 136,960 1,182 0 9,202 3,089 224 2,865 0 2,229 0 636 0 0
EX-27.2 62 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000714124 AVTECH CORPORATION 1,000 OTHER YEAR YEAR YEAR SEP-30-1998 SEP-30-1997 SEP-30-1996 SEP-30-1995 OCT-01-1997 OCT-01-1996 OCT-01-1995 OCT-01-1994 JUN-25-1998 SEP-30-1997 SEP-30-1996 SEP-30-1995 1,093 4,136 1,052 0 0 0 0 0 5,341 4,948 7,418 0 20 20 20 0 5,832 5,254 4,233 0 18,284 14,748 12,752 0 12,999 11,907 8,822 0 7,380 7,050 6,523 0 27,146 20,238 15,056 0 3,351 5,431 3,277 0 0 0 0 0 0 0 0 0 0 0 0 0 10,519 232 237 0 12,804 12,718 9,875 0 27,146 20,238 15,056 0 30,634 32,619 28,797 21,020 30,634 32,619 28,797 21,020 19,643 20,422 15,967 12,333 29,476 28,382 23,215 19,634 998 (295) (36) (38) 0 0 0 0 0 6 8 8 160 4,532 5,618 1,424 74 1,518 1,934 493 86 3,014 3,684 931 0 0 0 0 0 0 0 0 0 0 0 0 86 3,014 3,684 931 0 0 0 0 0 0 0 0
EX-27.3 63 EXHIBIT 27.3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001080979 PATS, INC. 1,000 6-MOS YEAR YEAR JUN-30-1999 JUN-30-1998 JUN-30-1997 JUL-01-1998 JUL-01-1997 JUL-01-1996 DEC-31-1998 JUN-30-1998 JUN-30-1997 2,504 216 401 0 0 0 3,729 1,798 2,554 456 451 362 7,146 6,582 6,586 17,883 9,109 9,361 6,823 6,130 2,734 1,968 1,745 1,334 24,137 14,956 11,941 15,664 7,984 7,592 0 0 0 0 0 0 0 0 0 18 17 18 4,954 3,277 3,740 24,137 14,956 11,941 19,380 23,464 21,726 19,380 23,464 21,726 14,234 16,992 15,573 16,769 22,968 19,679 0 0 0 0 0 0 180 166 70 2,431 330 1,977 961 11 782 1,470 319 1,195 0 0 0 0 0 0 0 0 0 1,470 319 1,195 0 0 0 0 0 0
EX-99.1 64 EXHIBIT 99.1 EXHIBIT 99.1 LETTER OF TRANSMITTAL DECRANE AIRCRAFT HOLDINGS, INC. Offer to Exchange Its 12% Series A Senior Subordinated Notes due 2008 for 12% Series B Senior Subordinated Notes due 2008 Pursuant to the Prospectus Dated ________, 1999 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___________, 1999, UNLESS THE OFFER IS EXTENDED. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: STATE STREET BANK & TRUST COMPANY, EXCHANGE AGENT BY MAIL: BY OVERNIGHT COURIER: P.O. Box 778 Two International Place Boston, Massachusetts 02102 Boston, Massachusetts 02110 ATTENTION: Corporate Trust Department ATTENTION: Corporate Trust Department Kellie Mullen Kellie Mullen BY HAND in New York to 4:30 p.m. BY HAND in Boston to 4:30 p.m.: (as drop agent): Two International Place 61 Broadway Fourth Floor 15th Floor Corporation Trust Corporate Trust Window Boston, Massachusetts 12110 New York, NY 10006 FOR INFORMATION CALL: 617-664-5587 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR IN A MANNER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). This Letter of Transmittal is to be completed by holders of Old Notes (as defined below) if Old Notes are to be forwarded herewith. If tenders of Old Notes are to be made by book-entry transfer to an account maintained by State Street Bank & Trust Company (the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer--Book-Entry Transfer" in the Prospectus and in accordance with the Automated Tender Offer Program ("ATOP") established by DTC, a tendering holder will become bound by the terms and conditions hereof in accordance with the procedures established under ATOP. Holders of Old Notes whose certificates (the "Certificates") for such Old Notes are not immediately available or who cannot deliver their Certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY ALL TENDERING HOLDERS COMPLETE THIS BOX: DESCRIPTION OF OLD NOTES TENDERED
Name(s) and address(es) of Registered Holder(s) Old Notes Tendered (Please fill in, if blank) (attach additional list if necessary) Principal Amount of Certificate Principal Amount Old Notes Tendered Number(s)* of Old Notes* (if less than all)** - -------------------------------------------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------------------------------------------- Total Amount Tendered - - --------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders. ** Old Notes may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof. All Old Notes held shall be deemed tendered unless a lesser number is specified in this column. (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution --------------------------------------------- DTC Account Number -------------------------------------------------------- Transaction Code Number --------------------------------------------------- [ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) ---------------------------------------------- Window Ticket Number (if any) --------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ------------------------ Name of Institution which Guaranteed -------------------------------------- If Guaranteed Delivery is to be made By Book-Entry Transfer: Name of Tendering Institution --------------------------------------------- DTC Account Number -------------------------------------------------------- Transaction Code Number --------------------------------------------------- [ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: --------------------------------------------------------------------- Address: ------------------------------------------------------------------ - -------------------------------------------------------------------------------- Ladies and Gentlemen: The undersigned hereby tenders to DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "Company"), the above described aggregate principal amount of the Company's 12% Series A Senior Subordinated Notes due 2008 (the "Old Notes") in exchange for a like aggregate principal amount of the Company's 12% Series B Senior Subordinated Notes due 2008 (the "Exchange Notes"), upon the terms and subject to the conditions set forth in the Prospectus dated ___________, 1999 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the "Exchange Offer"). The Exchange Offer has been registered under the Securities Act of 1933, as amended (the "Securities Act"). Subject to and effective upon the acceptance for exchange of all or any portion of the Old Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Old Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Company in connection with the Exchange Offer) with respect to the tendered Old Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver Certificates for Old Notes to the Company together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to be issued in exchange for such Old Notes, (ii) present Certificates for such Old Notes for transfer, and to transfer the Old Notes on the books of the Company, and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. The name(s) and address(es) of the registered holder(s) of the Old Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Certificates representing such Old Notes. The Certificate number(s) and the Old Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reason, or if Certificates are submitted for more Old Notes than are tendered or accepted for exchange, Certificates for such unaccepted or nonexchanged Old Notes will be returned (or, in the case of Old Notes tendered by book-entry transfer, such Old Notes will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Old Notes pursuant to any one of the procedures described in "The Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus and in the instructions hereto will, upon the Company's acceptance for exchange of such tendered Old Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. In all cases in which a Participant elects to accept the Exchange Offer by transmitting an express acknowledgment in accordance with the established ATOP procedures, such Participant shall be bound by all of the terms and conditions of this Letter of Transmittal. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Old Notes tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the Exchange Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Old Notes, that such Exchange Notes be credited to the account indicated above maintained at DTC. If applicable, substitute Certificates representing Old Notes not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Old Notes, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions," please deliver Exchange Notes to the undersigned at the address shown below the undersigned's signature. BY TENDERING OLD NOTES AND EXECUTING, OR OTHERWISE BECOMING BOUND BY, THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS AND (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE NOTES. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING, OR OTHERWISE BECOMING BOUND BY, THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT). THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING, OR OTHERWISE BECOMING BOUND BY, THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE EXCHANGE NOTES, IT SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF EXCHANGE NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable. HOLDER(S) SIGN HERE (See Instructions 2, 5 and 6) (Note: Signature(s) Must be Guaranteed if Required by Instruction 2) Must be signed by registered holder(s) exactly as name(s) appear(s) on Certificate(s) for the Old Notes hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith. If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary or representative capacity, please set forth the signer's full title. See Instruction 5. - -------------------------------------------------------------------------------- (Signature(s) of Holder(s)) Date , 1998 -------------------------------------------------------------------- Name(s) ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please Print) Capacity: ---------------------------------------------------------------------- (Include Full Title) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone Number - ------------------------------------------------------------- - -------------------------------------------------------------------------------- (Tax Identification or Social Security Number(s)) GUARANTEE OF SIGNATURE(S) (See Instructions 2 and 5) Authorized Signature ----------------------------------------------------------- Name - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Please Print) Date ,1998 --------------------------------------------------------------------- Capacity or Title --------------------------------------------------------------- Name of Firm -------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone Number ------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS (See Instructions 1, 5 and 6) To be completed ONLY if the Exchange Notes are to be issued in the name of someone other than the registered holder whose of the Old Notes name(s) appear(s) above. Issue Exchange Notes to: Name - -------------------------------------------------------------------------------- (Please Print) Address - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Taxpayer Identification or Social Security Number) SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5 and 6) To be completed ONLY if Exchange Notes are to be sent to someone other than the registered holder of the Old Notes whose name(s) appear(s) above, or to such registered holder(s) at an address other than that shown above. Mail Exchange Notes To: Name --------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Taxpayer Identification or Social Security Number) INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Offer 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed if Certificates are to be forwarded herewith. If tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer--Book-Entry Transfer" in the Prospectus and in accordance with ATOP established by DTC, a tendering holder will become bound by the terms and conditions hereof in accordance with the procedures established under ATOP. Certificates, or timely confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or facsimile thereof), if required, properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth herein on or prior to the Expiration Date. Old Notes may be tendered in whole or in part in the principal amount of $1,000 and integral multiples of $1,000. Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their Old Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) a properly completed and duly executed Letter of Transmittal (or facsimile) thereof and Notice of Guaranteed Delivery, substantially in the form made available by the Company, must be received by the Exchange Agent on or prior to the Expiration Date; and (iii) the Certificates (or a book-entry confirmation (as defined in the Prospectus)) representing all tendered Old Notes, in proper form for transfer, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent within five New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Old Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration Date. As used herein and in the Prospectus, "Eligible Institution" means a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States. THE METHOD OF DELIVERY OF OLD NOTES THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. The Company will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), or any Agent's Message in lieu thereof, waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of the Old Notes) of Old Notes tendered herewith, unless such holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or (ii) such Old Notes are tendered for the account of a firm that is an Eligible Institution. In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Old Notes" is inadequate, the Certificate number(s) and/or the principal amount of Old Notes and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be accepted only in the principal amount of $1,000 and integral multiples thereof. If less than all the Old Notes evidenced by any Certificate submitted are to be tendered, fill in the principal amount of Old Notes which are to be tendered in the box entitled "Principal Amount of Old Notes Tendered (if less than all)." In such case, new Certificate(s) for the remainder of the Old Notes that were evidenced by your old Certificate(s) will only be sent to the holder of the Old Note, promptly after the Expiration Date. All Old Notes represented by Certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective on or prior to that time, a written notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth above or in the Prospectus on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes) and (where Certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If Certificates for the Old Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the release of such Certificates, the withdrawing holder must submit the serial numbers of the particular certificates for the Old Notes to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedures for book-entry transfer set forth in the Prospectus under "The Exchange Offer--Book-Entry Transfer," any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Old Notes and otherwise comply with the procedures of such facility. Old Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any time on or prior to the Expiration Date by following one of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry procedures described in the Prospectus under "The Exchange Offer--Book-Entry Transfer" such Old Notes will be credited to an account maintained with DTC for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different names on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of Certificates. If this Letter of Transmittal or any Certificates or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Company, proper evidence satisfactory to the Company of such persons' authority to so act must be submitted. When this Letter of Transmittal is signed by the registered holder(s) of the Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or written instrument or instruments of transfer or exchange are required unless Exchange Notes are to be issued in the name of a person other than the registered holder(s). Signature(s) on such Certificate(s) or written instrument or instruments of transfer or exchange must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Old Notes listed, the Certificates must be endorsed or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion and executed by the registered holder(s), in either case signed exactly as the name or names of the registered holder(s) appear(s) on the Certificates. Signatures on such Certificates or written instrument or instruments of transfer or exchange must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if Exchange Notes are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Old Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4. 7. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Old Notes, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right, in its sole discretion, to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tender of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. 8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s) representing Old Notes have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the Certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen Certificate(s) have been followed. 10. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register Exchange Notes in the name of or request that Old Notes not tendered or not accepted in the Exchange Offer to be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. IMPORTANT: THIS LETTER OF TRANSMITTAL OR AN AGENT'S MESSAGE IN LIEU THEREOF, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. EX-99.2 65 EXHIBIT 99.2 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY For Tender Of 12% Senior Subordinated Notes due 2008 of DECRANE AIRCRAFT HOLDINGS, INC. This Notice of Guaranteed Delivery or one substantially equivalent hereto must be used to accept the Exchange Offer (as defined below) if (i) certificates for the Company's (as defined below) 12% Series A Senior Subordinated Notes due 2008 (the "Old Notes") are not immediately available, (ii) Old Notes, the Letter of Transmittal and any other documents required by the Letter of Transmittal cannot be delivered to State Street Bank & Trust Company (the "Exchange Agent") on or prior to the Expiration Date (as defined in the Prospectus referred to below) or (iii) the procedures for book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission, overnight courier, telex, telegram or mail to the Exchange Agent. See "The Exchange Offer - Guaranteed Delivery Procedures" in the Prospectus dated ____________, 1999 (which, together with the related Letter of Transmittal, constitutes the "Exchange Offer") of DeCrane Aircraft Holdings, Inc., a Delaware corporation (the "Company"). The Exchange Agent for the Exchange Offer is: STATE STREET BANK & TRUST COMPANY, EXCHANGE AGENT BY MAIL: BY OVERNIGHT COURIER: P.O. Box 778 Two International Place Boston, Massachusetts 02102 Boston, Massachusetts 02110 ATTENTION: Corporate Trust Department ATTENTION: Corporate Trust Kellie Mullen Department Kellie Mullen BY HAND in New York to 4:30 p.m. BY HAND in Boston to 4:30 p.m.: (as drop agent): Two International Place 61 Broadway Fourth Floor 15th Floor Corporation Trust Corporate Trust Window Boston, Massachusetts 12110 New York, NY 10006 FOR INFORMATION CALL: 617-664-5587 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY BY ANY MANNER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER OF TRANSMITTAL. THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (Not to be used for Signature Guarantee) The undersigned, a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, either the certificates for all physically tendered Old Notes, in proper form for transfer, or confirmation of the book-entry transfer of such Old Notes to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and any other documents required by such Letter of Transmittal, within five New York Stock Exchange trading days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Letter(s) of Transmittal and the Old Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. Name of Firm: --------------------- ------------------------------ (Authorized Signature) Address: Title: --------------------------- ------------------------ Name: - ----------------------------------- ------------------------- (Zip Code) (Please type or print) Area Code and Telephone Number: Date: ------------------------ - ----------------------------------- NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND FULLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. -----END PRIVACY-ENHANCED MESSAGE-----